SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6081
THE LORI CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2262248
--------------------------- ---------------
State or other jurisdiction I.R.S. Employer
of incorporation or organization Identification No.
500 Central Avenue, Northfield, IL 60093
---------------------------------- --------
Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (708) 441-7300
Not Applicable
---------------------------------------------------------------------------
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 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.
Class Outstanding at April 30, 1995
---------------------------- -----------------------------
Common stock, $.01 par value 3,314,994
THE LORI CORPORATION
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
March 31, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Operations
for the three Months ended March 31, 1995 and March 31, 1994 4
Condensed Consolidated Statement of Changes in Shareholders'
Equity (Deficit) for the three Months ended March 31, 1995 5
Condensed Consolidated Statements of Cash Flows
for the three Months ended March 31, 1995 and March 31, 1994 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands)
March 31, December 31,
1995 1994
-------- --------
ASSETS
Current assets:
Cash and equivalents .................................................. $ 147 $ 783
Restricted cash and equivalents ....................................... 550
Receivables, less allowance for doubtful accounts
and markdowns of $984 in 1995 and $1,338 in 1994 ................... 1,216 814
Inventories ........................................................... 1,935 2,105
Other ................................................................. 186 260
-------- --------
Total current assets ...................................... 3,484 4,512
-------- --------
Property, plant and equipment ............................................ 1,584 1,563
Less accumulated depreciation and amortization ........................... 1,151 1,119
-------- --------
433 444
-------- --------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization of $3,520 in 1995 and $3,415 in 1994 13,035 13,140
Other ................................................................. 869 608
-------- --------
13,904 13,748
-------- --------
$ 17,821 $ 18,704
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands)
March 31, December 31,
1995 1994
-------- --------
LIABILITIES
Current liabilities:
Note payable to a related party .................................... $ 850
Current maturities of long-term debt ............................... $ 750
Accounts payable ................................................... 2,568 3,414
Accrued expenses ................................................... 997 905
Due to ARTRA ....................................................... 382 289
-------- --------
Total current liabilities .............................. 4,797 5,358
-------- --------
Debt subsequently discharged .......................................... 7,105
--------
Other noncurrent liabilities .......................................... 1,002 963
-------- --------
Commitments and contingencies
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, authorized 1,000 shares,
all series; Series C, issued 10 shares, including accrued dividends 19,515 19,515
Common stock, $.01 par value; authorized 10,000 shares;
issued 3,415 shares in 1995 and 3,265 shares in 1994 ............... 33 32
Less restricted common stock (100 shares) ............................. (700) (700)
Additional paid-in capital ............................................ 65,728 65,392
Accumulated deficit ................................................... (72,554) (78,961)
-------- --------
12,022 5,278
-------- --------
$ 17,821 $ 18,704
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three Months Ended March 31,
1995 1994
-------- --------
Net sales ........................................... $ 4,944 $ 9,269
-------- --------
Costs and expenses:
Cost of goods sold ............................... 2,863 5,097
Selling, general and administrative .............. 2,129 4,581
Depreciation and amortization .................... 138 364
-------- --------
5,130 10,042
-------- --------
Operating loss ...................................... (186) (773)
-------- --------
Other income (expense):
Interest expense ................................. (62) (491)
Other income, net ................................ 9
-------- --------
(62) (482)
-------- --------
Loss before income taxes and extraordinary credit ... (248) (1,255)
Provision for income taxes .......................... (2) (5)
-------- --------
Loss before extraordinary credit .................... (250) (1,260)
Extraordinary credit, net discharge of indebtedness . 6,657
-------- --------
Net earnings (loss) ................................. $ 6,407 ($ 1,260)
======== ========
Earnings (loss) per share:
Loss before extraordinary credit ................. $ (0.07) ($ 0.40)
Extraordinary credit ............................. 1.79
-------- --------
Net earnings (loss) .................. $ 1.72 ($ 0.40)
======== ========
Weighted average number of shares of common stock and
common stock equivalents outstanding ............. 3,731 3,163
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited in thousands, except share data)
Restricted Total
Preferred Stock Common Stock Common Stock Additional Shareholders'
--------------- ---------------- ---------------- Paid-in Accumulated Equity
Shares Dollars Shares Dollars Shares Dollars Capital (Deficit) (Deficit)
------ ------- -------- ------- ------ ------- ------- -------- -------
Balance at December 31, 1994 9,701 $ 19,515 3,265,019 $ 32 100,000 ($700) $ 65,392 ($ 78,961) $ 5,278
Net earnings ............ 6,407 6,407
Common stock issued as
consideration for debt
restructuring ......... 150,000 1 336 337
Fractional shares purchased (24)
------ ------- --------- --- ------- ---- ------- -------- -------
Balance at March 31, 1995 .. 9,701 $ 19,515 3,414,995 $ 33 100,000 ($700) $ 65,728 ($ 72,554) 12,022
====== ======= ========= === ======= ==== ======= ======== =======
The accompanying notes are an integral part of the condensed consolidated
financial statements.
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Three Months
Ended March 31,
-----------------
1995 1994
------ ------
Net cash flows used by operating activities ...... $ (920) $ (211)
------ ------
Cash flows from investing activities:
Payment of liabilites with restricted cash .... 550
Additions to property, plant and equipment .... (21) (18)
Retail fixtures ............................... (338) (97)
------ ------
Net cash flows from (used by) investing activities 191 (115)
------ ------
Cash flows from financing activities:
Net increase (decrease) in short-term debt .... 850 (36)
Proceeds from long-term borrowings ............ 1,150
Reduction of long-term debt ................... (750) (375)
Other ......................................... (7) 2
------ ------
Net cash flows from financing activities ......... 93 741
------ ------
Increase (decrease) in cash and cash equivalents . (636) 415
Cash and equivalents, beginning of period ........ 783 540
------ ------
Cash and equivalents, end of period .............. $ 147 $ 955
====== ======
Supplemental cash flow information:
Cash paid during the period for:
Interest ................................... $ 36 $ 108
Income taxes paid, net ..................... 3 20
Supplemental schedule of noncash investing
and financing activities:
Common stock issued as consideration
for debt restructuring ................... 337
The accompanying notes are an integral part of the condensed consolidated
financial statements.
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ARTRA GROUP INCORPORATED ("ARTRA"), a public company whose shares are traded on
the New York Stock Exchange, owns, through its wholly-owned subsidiary Fill-Mor
Holding, Inc. ("Fill-Mor"), approximately 63.4% of the common stock and all of
the outstanding preferred stock of The Lori Corporation ("Lori" or the
"Company"). Lori is operating in one industry segment (popular-priced fashion
costume jewelry and accessories) through its two wholly-owned subsidiaries
Lawrence Jewelry Corporation ("Lawrence") and Rosecraft, Inc. ("Rosecraft").
The Company's condensed consolidated financial statements are presented on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. In the opinion of
the Company, the accompanying condensed consolidated financial statements
reflect all normal recurring adjustments necessary to present fairly the
financial position as of March 31, 1995, and the results of operations and
changes in cash flows for the three month periods ended March 31, 1995 and March
31, 1994. The Company has incurred losses from continuing operations in recent
years, has a deficiency of working capital of $1,113,000 at March 31, 1995 and
no financing in place for the coming year. No assurances can be given that
either the business and operations of Lori or the market conditions in the
fashion jewelry industry generally will improve in the immediate future. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Lori anticipates that the successful completion of the restructuring of its debt
(see Note 2), plus additional working capital borrowings either from ARTRA or
external sources will permit it to fund its capital requirements in 1995. In
addition, Lori continues to restructure its operations and is attempting to
increase sales such that operating results will improve. If Lori is unable to
obtain working capital borrowings to fund its operations in 1995 and improve the
results of operations, it may be forced to liquidate its assets or file for
protection under the Bankruptcy Code.
Lori's business plan for 1995 is based on the continued dependence upon certain
major customers.
These condensed consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all the
disclosures required in the Company's annual report on Form 10-K. Accordingly,
the Company's annual report on Form 10-K for the fiscal year ended December 31,
1994, as filed with the Securities and Exchange Commission, should be read in
conjunction with the accompanying consolidated financial statements. The
condensed consolidated balance sheet as of December 31, 1994 was derived from
the audited consolidated financial statements in the Company's annual report on
Form 10-K.
Reported interim results of operations are based in part on estimates which may
be subject to year-end adjustments. In addition, these quarterly results of
operations are not necessarily indicative of those expected for the year.
2. DEBT RESTRUCTURING
Effective August 18, 1994, as amended December 23, 1994, ARTRA, Fill-Mor, Lori
and Lori's operating subsidiaries, (including New Dimensions Accessories, Ltd.,
"New Dimensions", which ceased operations effective December 27, 1994) entered
into an agreement with Lori's bank lender to settle obligations due the bank
under terms of the bank loan agreements of Lori and its operating subsidiaries
and Fill-Mor.
Per terms of the Amended Settlement Agreement, borrowings due the bank under the
loan agreements of Lori and its operating subsidiaries and Fill-Mor
(approximately $25,000,000 as of December 23, 1994), plus amounts due the bank
for accrued interest and fees were reduced to $10,500,000 (of which $7,855,000
pertained to Lori's obligation to the bank and $2,645,000 pertained to
Fill-Mor's obligation to the bank). Upon the satisfaction of certain conditions
of the Amended Settlement Agreement in 1995, as discussed below, the balance of
this indebtedness was discharged.
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In conjunction with the Amended Settlement Agreement, ARTRA entered into a
$1,850,000 short-term loan agreement with a non-affiliated corporation, the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan, due June 30, 1995, with interest payable monthly at 10%, is collateralized
by 100,000 shares of Lori common stock. These 100,000 Lori common shares,
originally issued to the bank under terms of the August 18, 1994 Settlement
Agreement, are carried in the Company's condensed consolidated balance sheet as
restricted common stock. Upon payment of the loan, these shares will revert to
treasury stock.
In exchange for the reduction of amounts due the bank, and as additional
consideration for the $1,850,000 short-term loan agreement from the
non-affiliated corporation, Lori and Lori's operating subsidiaries, ARTRA and
Fill-Mor agreed to pay the following consideration:
A) A cash payment to the bank of $1,900,000, which was made in
December, 1994.
B) 400,000 shares of ARTRA common stock. These 400,000 ARTRA
common shares were originally issued to the bank under terms
of the August 18, 1994 Settlement Agreement. The bank retained
100,000 shares and the non-affiliated corporation received
300,000 shares as additional consideration for its short-term
loan.
C) Assignment to the bank of all of the assets of Lori's New
Dimensions subsidiary.
D) A $750,000 note payable to the bank due March 31, 1995.
The Settlement Agreement required ARTRA to advance $400,000 to Lori which, along
with $150,000 of the ARTRA $1,850,000 short-term loan agreement noted above, was
deposited in trust at December, 1994. This deposit was used to fund the
installment payment due December 31, 1994 for unsecured claims arising from the
May 3, 1993 reorganization of New Dimensions. The installment payment was made
in January, 1995.
The August 18, 1994 settlement agreement required ARTRA to contribute cash of
$1,500,000 to Lori for working capital. ARTRA's cash contribution was funded by
private placements of ARTRA common stock. An officer/director of Lori
participated in the private placement of ARTRA common stock purchasing $150,000
of ARTRA common stock (37,500 shares), subject to the same terms and conditions
as the other outside investors.
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Lori recognized an extraordinary gain of $8,965,000 ($2.81 per share) in
December 1994 as a result of the reduction of amounts due the bank under the
loan agreements of Lori and its operating subsidiaries and Fill-Mor to
$10,500,000 (of which $7,855,000 pertained to Lori's obligation to the bank and
$2,645,000 pertained to Fill-Mor's obligation to the bank) as of December 23,
1994 calculated (in thousands) as follows:
Amounts due the bank under loan agreements
of Lori and its operating subsidiaries ......... $ 22,749
Less amounts due the bank at December 29, 1994 .... (7,855)
-------
Bank debt discharged .............................. 14,894
Accrued interest and fees discharged .............. 3,635
Other liabilities discharged ...................... 1,985
Less consideration to the bank per terms of the
amended settlement agreement
Cash ..................................... (1,900)
ARTRA common stock ....................... (2,500)
New Dimensions assets assigned to the bank (7,149)
-------
Net extraordinary gain ................... $ 8,965
=======
Lori also recorded a charge against operations in December 1994 to write-off New
Dimensions' goodwill, which had a book value of $10,800,000.
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori of $6,657,000 ($1.79 per share) in the first quarter
of 1995. The $750,000 note payment was funded with the proceeds of a $850,000
short-term loan from a director of Lori. The loan provides for interest at the
prime rate plus 1%. As consideration for assisting in the debt restructuring,
the director received 150,000 Lori common shares valued at $337,500 ($2.25 per
share) based upon Lori's closing market value on March 30, 1995. The first
quarter 1995 extraordinary gain was calculated (in thousands) as follows:
Amounts due the bank under loan agreements
of Lori and its operating subsidiaries ............ $ 7,855
Less amounts due the bank applicable to Lori ....... (561)
------
Bank debt discharged ................................. 7,294
Less fair market value of Lori common stock
issued as consideration for the debt restructuring (337)
Other fees and expenses .............................. (300)
------
Net extraordinary gain ...................... $ 6,657
======
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
3. INVENTORIES
Inventories (in thousands) consist of:
March 31, December 31,
1995 1994
------ ------
Raw materials and supplies ...... $ 95 $ 115
Work in process ................. 26 19
Finished goods .................. 1,814 1,971
------ ------
$1,935 $2,105
====== ======
4. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt (in thousands) consists of:
March 31, December 31,
1995 1994
------ ------
Notes payable
Amounts due to a related party,
interest at the prime rate plus 1% $ 850 $ -
====== ======
Long-term debt
Amounts due a bank term under terms of
a debt settlement agreement ..... - $ 7,855
Current scheduled maturities ......... - (750)
Debt subsequently discharged ......... - (7,105)
------ ------
$ - $ -
====== ======
As discussed in Note 2, effective August 18, 1994, as amended effective December
23, 1994, ARTRA, Fill-Mor, Lori and Lori's operating subsidiaries entered into
an agreement with Lori's bank lender to settle obligations due the bank under
terms of the bank loan agreements of Lori and its operating subsidiaries and
Fill-Mor. Per terms of the Amended Settlement Agreement, borrowings due the bank
under the loan agreements of Lori and its operating subsidiaries and Lori's
parent, Fill-Mor, plus amounts due the bank for accrued interest and fees were
reduced to $10,500,000 as of December 23, 1994 (of which $7,855,000 pertained to
Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's obligation
to the bank). As partial consideration for the Amended Settlement Agreement the
bank received a $750,000 Lori note payable due March 31, 1995.
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori of $6,657,000 in 1995 (See Note 2). The $750,000 note
payment was funded with the proceeds of a $850,000 short-term loan from a
director of Lori. The loan provides for interest at the prime rate plus 1%. As
consideration for assisting with the debt restructuring, the director received
150,000 Lori common shares valued at $337,500 ($2.25 per share) based upon
Lori's closing market value on March 30, 1995.
5. PREFERRED STOCK
The Series C cumulative preferred stock, owned in its entirety by ARTRA, accrues
dividends at the rate of 13% per annum on its liquidation value. Accumulated
dividends were $7,011,000 at March 31, 1995 and December 31, 1994. Due to the
limited ability of the Company to receive funds from its operating subsidiaries
in recent years under terms of their former bank loan agreements, effective July
1, 1989, ARTRA placed a moratorium on the accrual of interest and the
declaration and accrual of dividends on its Lori preferred stock. The moratorium
has been extended indefinitely.
The Series C preferred stock is redeemable at Lori's option at prices based upon
the principal amount paid plus accumulated dividends and a redemption premium
that increased each year until 1995.
6. EARNINGS PER SHARE
Earnings (loss) per share is computed by dividing net earnings (loss) by the
weighted average number of shares of common stock and common stock equivalents
(stock options and warrants), unless anti-dilutive, outstanding during each
period. Fully diluted earnings per share are not presented since the result is
equivalent to primary earnings per share.
7. INCOME TAXES
The 1995 extraordinary credit represents a net gain from discharge of bank
indebtedness. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credit due to the utilization of tax
loss carryforwards. No income tax benefit was recognized in connection with the
Company's 1994 pre-tax loss due to the Company's tax loss carryforwards.
8. LITIGATION
Lori and its subsidiaries are parties in various business related litigation
which, in the opinion of management, will not have a material adverse effect on
the Company's financial position and results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion supplements the information found in the financial
statements and related notes:
Liquidity and Capital Resources
Cash and cash equivalents decreased $636,000 during the three months ended March
31, 1995. Cash flows used by operating activities of $920,000 exceeded cash
flows from investing activities of $191,000 and cash flows from financing
activities of $93,000. Cash flows used by operating activities were principally
attributable to the Company's loss from operations and an installment payment
made in January 1995 for unsecured claims arising from the May 1993
reorganization of New Dimensions. Cash flows from investing activities consisted
of $550,000 deposited in trust in December, 1994 used to fund an installment
payment in January, 1995 for unsecured claims arising from the May, 1993
reorganization of New Dimensions, less expenditures for retail fixtures of
$338,000 and expenditures for equipment of $21,000. Cash flows from financing
activities were attributable to an $850,000 short-term loan from a director of
the Company used to fund the $750,000 payment due the Company's former bank
lender under terms of the debt settlement agreement.
During the three months ended March 31, 1995, the Company's working capital
deficiency increased by $467,000. The increase in working capital deficiency is
principally attributable to the Company's loss from operations.
In recent years, the Company has suffered significant operating losses,
principally at its New Dimensions subsidiary. As a result of the significant
operating loss incurred in 1992, on February 5, 1993, New Dimensions filed a
petition for reorganization under Chapter 11 of the Bankruptcy Code. On April 9,
1993, New Dimensions' reorganization plan was confirmed by an order of the
Bankruptcy Court and on May 3, 1993, the consummation date of the
reorganization, New Dimensions emerged from Chapter 11 bankruptcy court
protection. Lori assumed and guaranteed certain New Dimensions' pre-bankruptcy
loans payable to its bank and the bank also provided New Dimensions with certain
credit facilities. Additionally, Lori's bank lender provided Lawrence and
Rosecraft with new credit facilities in the first quarter of 1993.
At December 31, 1993 and during 1994, Lori and its operating subsidiaries were
not in compliance with certain provisions of their respective bank loan
agreements.
Effective August 18, 1994, as amended December 23, 1994, Lori and Lori's
operating subsidiaries (collectively, the "Borrowers"), ARTRA and Fill-Mor
entered into an agreement with Lori's bank lender to settle obligations due the
bank under terms of the bank loan agreements of Lori and its operating
subsidiaries.
Per terms of the Amended Settlement Agreement, borrowings due the bank under the
loan agreements of the Borrowers and Fill-Mor (approximately $25,000,000 as of
December 23, 1994), plus amounts due the bank for accrued interest and fees were
reduced to $10,500,000 as of December 23, 1994 (of which $7,855,000 pertained to
Lori's obligation to the bank and $2,645,000 pertained to Fill-Mor's obligation
to the bank). Upon the satisfaction of certain conditions of the Amended
Settlement Agreement in March 1995, as discussed below, the balance of this
indebtedness was discharged.
In conjunction with the Amended Settlement Agreement, ARTRA entered into a
$1,850,000 short-term loan agreement with a non-affiliated corporation, the
proceeds of which were used to fund amounts due the bank as discussed below. The
loan, due June 30, 1995, with interest payable monthly at 10%, is collateralized
by 100,000 shares of Lori common stock. These 100,000 Lori common shares,
originally issued to the bank under terms of the August 18, 1994 Settlement
Agreement, are carried in the Company's condensed consolidated balance sheet as
restricted common stock. Upon payment of the loan, these shares will revert to
treasury stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
In exchange for the reduction of amounts due the bank, and as additional
consideration for the $1,850,000 short-term loan agreement from the
non-affiliated corporation, the Borrowers, ARTRA and Fill-Mor agreed to pay the
following consideration, which supersedes the consideration agreed to under
terms of the August 18, 1994 Settlement Agreement:
A) A cash payment to the bank of $1,900,000, which was made
prior to consummation of the Amended Settlement Agreement.
B) 400,000 shares of ARTRA common stock.. These 400,000 ARTRA
common shares were originally issued to the bank under terms
of the August 18, 1994 Settlement Agreement. The bank retained
100,000 shares and the non-affiliated corporation received
300,000 shares as additional consideration for its short-term
loan.
C) Assignment to the bank of all of the assets of Lori's New
Dimensions subsidiary.
D) A $750,000 note payable to the bank due March 31, 1995.
Additionally, ARTRA advanced $400,000 to Lori to be used to fund the installment
payment due December 31, 1994 for unsecured claims arising from the May 3, 1993
reorganization of New Dimensions.
The August 18, 1994 settlement agreement required ARTRA to contribute cash of
$1,500,000 to Lori for working capital. ARTRA's cash contribution was funded by
private placements of ARTRA common stock. An officer/director of Lori
participated in the private placement of ARTRA common stock purchasing $150,000
of ARTRA common stock (37,500 shares), subject to the same terms and conditions
as the other outside investors.
Lori recognized an extraordinary gain of $8,965,000 ($2.81 per share) in
December 1994 as a result of the reduction of amounts due the bank under the
loan agreements of the Borrowers and Fill-Mor to $10,500,000 (of which
$7,855,000 pertained to Lori's obligation to the bank and $2,645,000 pertained
to Fill-Mor's obligation to the bank) as of December 23, 1994. Lori also
recorded a charge against operations of $10,800,000 in December 1994 to
write-off New Dimensions' remaining goodwill.
On March 31, 1995 the $750,000 note due the bank was paid and the remaining
indebtedness of Lori and Fill-Mor was discharged, resulting in an additional
extraordinary gain to Lori and Fill-Mor of $6,657,000 ($1.79 per share) in the
first quarter of 1995. The $750,000 note payment was funded with the proceeds of
a $850,000 short-term loan from a director of Lori. The loan provides for
interest at the prime rate plus 1%. As consideration for assisting in the debt
restructuring, the director received 150,000 Lori common shares valued at
$337,500 ($2.25 per share) based upon Lori's closing market value on March 30,
1995.
In recent years, New Dimensions has experienced a pattern of operating losses
primarily due to a shift in the buying patterns of its major customers (i.e.
certain mass merchandisers) from participation in the New Dimension's service
program to purchases of costume jewelry and accessories directly from
manufacturers. In the fourth quarter of 1994, New Dimensions' largest customer,
Wal-Mart, ended its participation in New Dimension's service program.
Accordingly, the assignment to the Company's bank lender of all of the assets of
the New Dimensions subsidiary in accordance with terms of the Amended Settlement
Agreement, resulted in New Dimensions ceasing its operations effective December
27, 1994. New Dimensions cessation of operations is not expected to have a
material adverse effect on the financial condition, liquidity or results of
operations of the Company in the immediate future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
Lori anticipates that the successful completion of the restructuring of its
debt, plus additional working capital borrowings either from ARTRA or external
sources will permit it to fund its capital requirements in 1995. In addition,
the Company continues to restructure its operations and is attempting to
increase sales such that operating results will improve. If Lori is unable to
obtain working capital borrowings to fund its operations in 1995 and improve the
results of operations, it may be forced to liquidate its assets or file for
protection under the Bankruptcy Code.
Lori's 1995 business plan is based on the continued dependence upon certain
major customers.
The common stock and virtually all the assets of the Company and its operating
subsidiaries have been pledged as collateral for $850,000 short-term loan from a
director of Lori, the proceeds of which were used to fund the $750,000 note
payment to the bank under terms of the debt settlement agreement.
Due to the limited ability of the Company to receive funds from its operating
subsidiaries in recent years under terms of their former bank loan agreements,
effective July 1, 1989, ARTRA placed a moratorium on the declaration and accrual
of dividends on its Lori preferred stock. The moratorium has been extended
indefinitely. Additionally, Lori has not paid dividends on its common stock in
recent years and no dividend payments are anticipated in the immediate future.
During the three months ended March 31, 1995, ARTRA made net advances of $93,000
to Lori. During 1994, ARTRA made net advances to Lori of $2,531,000. The
advances consisted of a $1,850,000 short-term note with interest at 10%, the
proceeds of which were used to fund the $1,900,000 cash payment to the bank in
conjunction with the Amended Settlement Agreement with Lori's bank lender, and
certain non-interest bearing advances used to fund Lori working capital
requirements.
Effective December 29, 1994 ARTRA exchanged $2,242,000 of its notes and advances
for additional Lori Series C preferred stock. Additionally, the August 18, 1994
Settlement Agreement required ARTRA to contribute cash of $1,500,000 and ARTRA
common stock with a fair market value of $2,500,000 to Lori's capital account.
Rosecraft, Lawrence and Lori's corporate entity have no material commitments for
capital expenditures.
Results of Operations
1995 vs 1994
The assignment to the Company's bank lender of all of the assets of the New
Dimensions subsidiary in accordance with terms of the debt settlement agreement,
resulted in New Dimensions terminating its operations effective December 27,
1994. The results of operations for the three months ended March 31, 1994
included New Dimensions net sales of $3,551,000 and operating loss of $485,000.
New Dimensions ceased operations effective December 27, 1994
Net sales of $4,944,000 for the three months ended March 31, 1995 were
$4,325,000, or 46.7%, lower than net sales for the three months ended March 31,
1994. The 1995 sales decrease is principally attributable the termination of New
Dimensions operations effective December 27, 1994 and a soft retail environment
in 1995.
The Company's cost of sales of $2,863,000 for the three months ended March 31,
1995 decreased $2,234,000 as compared to the three months ended March 31, 1994.
Cost of sales in the three months ended March 31, 1995 was 57.9% of net sales
compared to a cost of sales percentage of 55.0% for the three months ended March
31, 1994. The 1995 cost of sales decrease is principally attributable to the
decrease in sales volume due to the termination of New Dimensions operations
effective December 27, 1994. The cost of sales percentage increase of 2.9% is
primarily attributable to a soft retail environment that resulted in depressed
operating margins.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
Selling, general and administrative expenses in the three months ended March 31,
1995 decreased $2,452,000 as compared to the three months ended March 31, 1994.
Selling, general and administrative expenses were 43.1% of net sales in the
three months ended March 31, 1995 as compared to 49.4% of net sales in the three
months ended March 31, 1994. The decrease in selling, general and administrative
expenses is attributable to the decrease in sales volume due to the termination
of New Dimensions operations effective December 27, 1994. The decrease in
selling, general and administrative expenses as a percentage of net sales is
attributable to certain cost reduction efforts of the Company and its operating
subsidiaries.
Operating loss in the three months ended March 31, 1995 was $186,000 as compared
to operating loss of $773,000 in the year ended three months ended March 31,
1994. The decreased 1995 operating loss is principally attributable to New
Dimensions, which terminated operations effective December 27, 1994.
Interest expense in the three months ended March 31, 1995 decreased $429,000 as
compared to the three months ended March 31, 1994. The 1995 decrease is
principally due the settlement agreement with the Company's bank lender. See
Note 2 to the Company's condensed consolidated financial statements.
The 1995 extraordinary credit represents a net gain from discharge of bank
indebtedness. No income tax expense is reflected in the Company's financial
statements resulting from the extraordinary credit due to the utilization of tax
loss carryforwards. Due to the Company's tax loss carryforwards and the
uncertainty of future taxable income, no income tax benefit was recognized in
connection with the Company's 1994 pre-tax loss.
Seasonality
Retail sales of the Company are higher during the Spring (February through
April) and Christmas (September through December) seasons. As a result of these
seasonal factors, the Company's inventories of finished goods reach peak levels
during these periods and are generally lower during the balance of the year.
Impact of Inflation and Changing Prices
Inflation has become a less significant factor in our economy; however, to the
extent permitted by competition, the Company generally passes increased costs to
its customers by increasing sales prices over time.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K:
On January 3, 1995 the Company filed Form 8-K to report the
December 13, 1994 notification of certain defaults by the
Company and its operating subsidiaries under the August Debt
Settlement Agreement with a bank. Effective December 23,
1994, the parties entered into an Amended Settlement
Agreement to discharge certain indebtedness due the bank.
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 thereunder duly authorized.
THE LORI CORPORATION
------------------------------------------
Registrant
Dated: May 18, 1995 JAMES D. DOERING
- --------------------- ------------------------------------------
Vice President and Chief Financial Officer