- -----------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended June 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ______ to ______.
Commission File No.: 0-20101
-------
URECOATS INDUSTRIES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3545304
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4100 North Powerline Road, Suite F-1
Pompano Beach, Florida 33021
---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(954)977-5428
--------------------------------------------------
Registrant's telephone number, including area code
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 registrant's
classes of common stock, as of the latest practicable date. As of August 1,
2001, the registrant had 111,759,105 shares of common stock, par value $.01
outstanding.
- -----------------------------------------------------------------------------
URECOATS INDUSTRIES INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2001
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
- -------------------------------
ITEM 1. FINANCIAL STATEMENTS.......................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... 19
PART II. OTHER INFORMATION
- ----------------------------
ITEM 1. LEGAL PROCEEDINGS............................................. 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................... 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES............................... 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 20
ITEM 5. OTHER INFORMATION............................................. 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................. 20
SIGNATURES................................................................. 21
EXHIBIT INDEX.............................................................. 22
Page 2
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PAGE
----
CONSOLIDATED BALANCE SHEETS................................. 4
CONSOLIDATED STATEMENTS OF OPERATIONS....................... 6
CONSOLIDATED STATEMENTS OF CASH FLOWS....................... 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. 10
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are not applicable, and therefore have been
omitted.
Page 3
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
------
JUNE 30 DECEMBER 31
------------- -------------
2001 2000
------------- -------------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 127,409 $ 16,998
Accounts and Loans Receivable 308,864 22,312
Inventory 35,913 ---
Prepaid Expenses 44,732 82,503
------------- -------------
TOTAL CURRENT ASSETS 516,918 121,813
------------- -------------
PROPERTY AND EQUIPMENT, NET 1,330,282 951,452
------------- -------------
OTHER ASSETS:
Intangibles, Net 1,116,607 1,051,564
Deposits 25,415 24,476
------------- -------------
TOTAL OTHER ASSETS 1,142,022 1,076,040
------------- -------------
TOTAL ASSETS $ 2,989,222 $ 2,149,305
============= =============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 4
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
JUNE 30 DECEMBER 31
------------- -------------
2001 2000
------------- -------------
(UNAUDITED)
CURRENT LIABILITIES:
Current Maturities of Long Term Debt $ 213,063 $ 130,334
Accounts Payable and Accrued Expenses 1,149,204 589,999
Loans Payable 5,880 5,880
------------- -------------
TOTAL CURRENT LIABILITIES 1,368,147 726,213
------------- -------------
LONG-TERM DEBT 257,740 131,920
CAPITALIZED LEASE, LONG TERM 3,698 5,454
DUE TO RELATED PARTIES --- 2,507,000
DEFERRED INCOME 50,000 50,000
------------- -------------
TOTAL LIABILITIES 1,679,585 3,420,587
------------- -------------
COMMITMENTS AND CONTINGENCIES 673,939 670,939
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $1.00 Par Value, 2,000,000
Shares Authorized, of which Series A
Convertible, 750,000 Shares Authorized;
Issued & Outstanding, 62,500 Shares
Unconverted (Less Offering Costs of $7,465) 55,035 55,035
Common Stock $.01 Par Value, 140,000,000
shares Authorized; 111,759,105 Shares Issued
and Outstanding 1,117,591 993,420
Additional Paid-In-Capital 27,104,616 21,776,138
Accumulated (Deficit)-Continuing Operations (14,023,031) (10,996,326)
Accumulated (Deficit)-Discontinued Operations (13,618,513) (13,770,488)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 635,698 (1,942,221)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,989,222 $ 2,149,305
============= =============
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 5
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30
----------------------------
2001 2000
----------------------------
REVENUES $ 488,364 $ -0-
------------- -------------
COSTS AND EXPENSES:
Cost of Sales 757,868 ---
Selling, General and Administrative 419,693 327,065
Professional Fees 80,913 60,428
Depreciation and Amortization 103,631 67,893
Research and Development 645,054 237,944
Consulting Fees 24,430 127,644
------------- -------------
TOTAL COSTS AND EXPENSES 2,031,589 819,974
------------- -------------
NET (LOSS) FROM CONTINUING OPERATIONS (1,543,225) (819,974)
(LOSS) FROM DISCONTINUED OPERATIONS (1,704) (384)
------------- -------------
NET (LOSS) $ (1,544,929) $ (820,358)
============= =============
NET (LOSS) PER COMMON SHARE
Basic
Continuing Operations $ (0.014) $ (0.009)
Discontinued Operations (0.000) (0.000)
------------- -------------
TOTAL $ (0.014) $ (0.009)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 109,931,920 94,754,469
------------- -------------
NET (LOSS) INCOME PER COMMON SHARE
Diluted
Continuing Operations $ (0.014) $ (0.008)
Discontinued Operations (0.000) (0.000)
------------- -------------
TOTAL $ (0.014) $ (0.008)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 113,335,428 99,191,969
------------- -------------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 6
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
----------------------------
2001 2000
----------------------------
REVENUES $ 733,830 $ -0-
------------- -------------
COSTS AND EXPENSES:
Cost of Sales 1,096,447 ---
Selling, General and Administrative 1,515,633 741,265
Professional Fees 154,007 93,859
Depreciation and Amortization 194,698 121,761
Research and Development 688,010 436,806
Consulting Fees 111,740 925,525
------------- -------------
TOTAL COSTS AND EXPENSES 3,760,535 2,319,216
------------- -------------
NET (LOSS) FROM CONTINUING OPERATIONS (3,026,705) (2,319,216)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS 151,975 (4,001)
------------- -------------
NET (LOSS) $ (2,874,730) $ (2,323,217)
============= =============
NET INCOME (LOSS) PER COMMON SHARE
Basic
Continuing Operations $ (0.029) (0.025)
Discontinued Operations 0.002 (0.000)
------------- -------------
TOTAL $ (0.027) $ (0.025)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 105,550,537 94,751,844
------------- -------------
NET INCOME (LOSS) PER COMMON SHARE
Diluted
Continuing Operations $ (0.028) (0.024)
Discontinued Operations 0.001 (0.000)
------------- -------------
TOTAL $ (0.027) $ (0.024)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 107,058,303 97,104,344
------------- -------------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 7
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
----------------------------
2001 2000(1)
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)
Continuing Operations $ (3,026,705) $ (2,319,216)
Discontinued Operations 151,975 (4,001)
ADJUSTMENTS TO RECONCILE NET (LOSS) TO NET CASH
(REQUIRED) BY OPERATING ACTIVITIES:
Depreciation and Amortization
Continuing Operations 194,630 121,677
Discontinued Operations 68 84
NON-CASH CONTINUING OPERATIONS 427,952 981,049
Changes in Assets and Liabilities:
Prepaid Expenses 37,771 (7,169)
Accounts and Loans Receivable (286,552) (6,689)
Inventory (35,913) ---
Deposits (939) (46,635)
Accounts Payable and Accrued Expenses 497,672 60,793
Commitments and Contingencies 3,000 (1,792)
------------- -------------
NET CASH (REQUIRED) BY OPERATING ACTIVITIES (2,037,041) (1,221,899)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Acquisition) of Property and Equipment
Continuing Operations (603,390) (533,705)
Disposition of Property and Equipment
Continuing Operations 30,730 ---
(Acquisition) of Intangibles
Continuing Operations (35,911) (12,200)
------------- -------------
NET CASH (REQUIRED) BY INVESTING ACTIVITIES (608,571) (545,905)
------------- -------------
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 8
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
SIX MONTHS ENDED
JUNE 30
----------------------------
2001 2000(1)
----------------------------
(UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 3,230 22,444
Proceeds from Issuance of Notes 328,549 264,492
(Payment) of Notes (121,756) (39,265)
Proceeds of Loans from Related Parties 2,546,000 1,540,000
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,756,023 1,787,671
------------- -------------
Net Increase (Decrease) in Cash
Continuing Operations 110,455 19,966
Discontinued Operations (44) (99)
------------- -------------
Net Increase in Cash 110,411 19,867
CASH AT BEGINNING OF PERIOD 16,998 15,026
------------- -------------
CASH AT END OF PERIOD $ 127,409 $ 34,893
============= =============
Supplemental Disclosure of Cash Flow Information:
Non-Cash Operating Activities:
Board of Director Fees $ 29,475 $ 67,852
Interest 80,839 ---
Settlement of Litigation 106,800 ---
Consultant Fees 56,442 785,937
Employee Compensation 113,371 127,360
Legal Fees 41,025 ---
-------------- -------------
Total Non-Cash Operating Activities $ 427,952 $ 981,049
Non-Cash Financing Activities:
Repayment of Debts 4,991,467 145,506
Acquisition 30,000 ---
-------------- -------------
Total Non-Cash Financing Activities $ 5,449,419 $ 1,126,555
============== =============
NOTE
- ----
(1) Items described herein as "Continuing Operations" for the June 30, 2000
period were previously reported as "Development-Stage Operations".
(2) The consolidated cash flows for the six months ended June 30, 2000 have
been restated to conform with the June 30, 2001 presentation.
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page 9
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE A - BASIS OF PRESENTATION
- ------------------------------
These statements are unaudited, but reflect all adjustments that, in the
opinion of management, are necessary to provide a fair presentation of the
financial position, results of operations and cash flows for the dates and
periods covered. All such adjustments are of a normal recurring nature.
NOTE B - SEGMENT INFORMATION - CONTINUING OPERATIONS
- ----------------------------------------------------
THREE MONTHS ENDED
JUNE 30
----------------------------
2001 2000(1)
----------------------------
SEGMENT REVENUES
----------------
ADHESIVES, SEALANTS AND COATINGS $ 34,718 $ -0-
ROOFING AND WATERPROOFING(2) 488,364 ---
------------- -------------
TOTAL SEGMENT REVENUES 523,082 -0-
ELIMINATION OF INTERSEGMENT TRANSFERS (34,718) -0-
------------- -------------
REVENUES $ 488,364 $ -0-
============= =============
AFTER-TAX OPERATING (LOSS)
--------------------------
ADHESIVES, SEALANTS AND COATINGS $ (474,808) $ (362,764)
ROOFING AND WATERPROOFING (443,273) ---
------------- -------------
TOTAL SEGMENT ATOI (918,081) $ (362,764)
INTEREST AND EXCHANGE (LOSSES) (32,193) (35,596)
CORPORATE EXPENSES (592,951) (421,614)
------------- -------------
(LOSS) FROM CONTINUING OPERATIONS $ (1,543,225) $ (819,974)
============= =============
Page 10
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE B - SEGMENT INFORMATION - CONTINUING OPERATIONS - CONTINUED
- ----------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30
----------------------------
2001 2000(1)
----------------------------
SEGMENT REVENUES
----------------
ADHESIVES, SEALANTS AND COATINGS $ 84,004 $ -0-
ROOFING AND WATERPROOFING(2) 733,830 ---
------------- -------------
TOTAL SEGMENT REVENUES 817,834 -0-
ELIMINATION OF INTERSEGMENT TRANSFERS (84,004) -0-
------------- -------------
REVENUES $ 733,830 $ -0-
============= =============
AFTER-TAX OPERATING (LOSS)
--------------------------
ADHESIVES, SEALANTS AND COATINGS $ (886,621) $ (1,075,823)
ROOFING AND WATERPROOFING (788,061) ---
------------- -------------
TOTAL SEGMENT ATOI (1,674,682) $ (1,075,823)
INTEREST AND EXCHANGE (LOSSES) (105,236) (53,241)
CORPORATE EXPENSES (1,246,787) (1,190,152)
------------- -------------
(LOSS) FROM CONTINUING OPERATIONS $ (3,026,705) $ (2,319,216)
============= =============
COMMENTS TO NOTE B
------------------
(1) Items described herein as "Continuing Operations" for the three
and six month periods ended June 30, 2000 for the adhesives,
sealants and coatings segment were previously reported as
"Development-Stage Operations".
(2) The Company began roofing and waterproofing operations in the first
quarter of 2001.
Page 11
URECOATS INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
NOTE C - EARNINGS PER SHARE
- ---------------------------
Basic earnings per share is computed by dividing income available to common
stockholders (the numerator) by the weighted-average number of common shares
(the denominator) for the period. For diluted earnings per share, the
denominator is based on the following weighted-average number of common shares
and includes the additional common shares that would have been outstanding of
potentially dilutive common shares had been issued:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------------- ----------------------------
BASIC DILUTED BASIC DILUTED
------------- ------------- ------------- -------------
2001 109,931,920 113,335,428 105,550,537 107,058,303
2000 94,754,469 99,191,969 94,751,844 97,104,344
NOTE D - INVENTORIES
- --------------------
JUNE 30 DECEMBER 31
2001 2000
------------- -------------
FINISHED PRODUCTS $ 21,264 $ ---
RAW MATERIALS AND SUPPLIES 14,649 ---
------------- -------------
TOTAL $ 35,913 $ ---
============= =============
NOTE E - SEGMENT INFORMATION
- ----------------------------
The Company's operations are grouped into two industry segments or divisions
as defined under Statement of Financial Accounting Standards (SFAS) No. 131.
The results of operations from the Company's five operating divisions that
are reportable under SFAS No. 131 for the three and six month periods ended
June 30, 2001, as compared to the three and six month periods ended June 30,
2000, are more fully described below, with the exception of the roofing and
waterproofing operations, which cannot be compared to any prior corresponding
period due to operations beginning in the first quarter of 2001. Included in
all divisions are Urecoats Technologies, Inc., Urecoats International, Inc.,
Urecoats Manufacturing, Inc., Urecoats Distribution, Inc., and Rainguard
Roofing Corporation.
Page 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------
The following discussion of our results of operations and liquidity
and capital resources should be read in conjunction with our condensed
consolidated financial statements and related notes thereto appearing
elsewhere in this report. All information in the discussion and references
to the year and quarter are based on our fiscal year and second quarter,
which end on December 31 and June 30, respectively.
The Company exited its development-stage and began operations on January
1, 2001, in two business segments: 1) adhesives, sealants and coatings, and
2) roofing and waterproofing, as described hereinbelow. We reclassified and
attributed prior development-stage operational figures for the year 2000, to
our adhesives, sealants and coatings segment, when and where applicable.
OVERVIEW
As a result of the global recycling movement and legislation aimed at
the extraction of raw materials from solid waste, management's view of the
future growth of the adhesive, sealant and coating industry is that there
will be an increasing market demand for quality and cost-effective products
utilizing recycled materials. We are committed to acquiring and developing
products, to supply the emerging market demands for such products.
We acquired all right, title and interest in two formulas, including
certain technologies for their manufacture and application pursuant to a
Purchase and Sale Agreement dated October 30, 1997, from Creative Chemical
Company(3C). These technologies form the foundation of our developing line
of products that incorporate recycled materials in their composition. We
refer to products made from these formulas as Rubber Sealant Membranes(RSM)
(TM). The formula of our flagship Rubber Sealant Membrane(RSM) product,
UrecoatsRSM-100(TM), was the subject of a utility patent application filed
with the United States Patent and Trademark Office ("USPTO") on August 19,
1998 and the patent was granted on August 7, 2001, patent number 6,271,035.
We have also filed patent applications for protection of our UrecoatsRSM-100
(TM) in Austria, Belgium, Cypres, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Luxemburg, Monaco, Netherlands, Portugal, Spain, Sweden,
United Kingdom, Canada, Brazil, and Mexico.
We began marketing, manufacturing and distributing UrecoatsRSM-100(TM)
and its application system, for and through our wholly-owned subsidiary,
Rainguard Roofing Corporation ("Rainguard"), for local applications in
South Florida, at the beginning of this year. Our primary purpose for
entering the roofing and waterproofing business ourselves instead of
approaching roofing and general contractors directly first, through
Rainguard, was to control the promotion, testing and application of the
UrecoatsRSM-100(TM) product and application system, and other products
acquired and/or developed by us.
Page 13
With help from outside consultants, engineers and the experience
gained from applying the UrecoatsRSM-100(TM) product through Rainguard, we
developed an enhanced and simplified system, which we named BlueMAX(TM).
Independent tests on our UrecoatsRSM-100(TM) product's formula have
confirmed that our formula can be used for different types of applications.
However, we chose to concentrate our tests over the past three years
primarily on roofing and waterproofing applications. Based on these test
results, actual application experiences through Rainguard, and the potential
in the $29 billion roofing industry, we decided to target the commercial
roofing industry first with our UrecoatsRSM-100(TM) product.
As part of our regional expansion plans, we introduced our UrecoatsRSM-
100(TM) product and BlueMAX(TM) application system at the Florida Roofers and
Sheet Metal Association's Convention in June 2001, to Roofing Contractors in
the Southeastern United States. We retained an independent sales
representative firm, Technical Support and Sales, Inc. ("TSS"), through our
newly formed subsidiary, Urecoats Distribution, Inc., to develop a sales and
marketing program for the Southeastern United States, generally targeting:
a) Building Owners; b) Architects; c) Engineers; d) Specifiers; and
e) Contractors. Presently, TSS is working with us to establish and implement
a certified training program to certify roofing contractors in the use and
application of our UrecoatsRSM-100(TM) product using our BlueMAX(TM)
application system, and will be responsible for introducing contractors who
will be trained through our certified training program. We are also
preparing for national and international expansion. We will be participating
in the National Roofing Contractors Association's convention in February 2002,
in San Antonio, Texas, which will constitute our national introduction.
We are in discussions with interested international groups in Mexico
and India, and negotiations with a party in Russia, for international
expansion, through our Urecoats International, Inc. subsidiary.
We are continuing research and development on new products (i.e. an
expansion joint compound, URX-300, is presently being tested through
Rainguard and independent testing labs, for application on bridges and
roads), and exploring and testing additional applications for our Rubber
Sealant Membrane(RSM)(TM) formula, for concrete and steel applications,
through our Urecoats Technologies, Inc. subsidiary.
We recently solidified mass production strategic relationships, through
our newly formed subsidiary, Urecoats Manufacturing, Inc., for manufacturing
the components of our UrecoatsRSM-100(TM) product, and BlueMAX(TM)
application system, by established and reputable suppliers. We believe we
will be able to handle all expected demand for our UrecoatsRSM-100(TM)
product and BlueMAX(TM) application system, on a continuous basis in the
United States from these sources. As of the date of filing this report, we
have ordered 10 BlueMAX(TM) application systems. Initial BlueMAX(TM)
shipments will begin in the fourth quarter of this year.
Page 14
We signed a letter of intent on May 18, 2001 to acquire Infiniti Paint
Company Inc., a local adhesives, sealants, coatings, paints, and foam
distributor, to establish a distribution channel for our UrecoatsRSM-100(TM)
product and BlueMAX(TM) application system servicing roofing and general
contractors. This acquisition is synergistic on three levels. First, Infiniti
already distributes products to the roofing and general contracting trades,
and specifically foam components and related foam application equipment. Our
UrecoatsRSM-100(TM) product and BlueMAX(TM) application system distribution
requirements are similar to those required for foam products. Second,
Infiniti markets and sells other products. After closing, we will be
generating revenues from the sale of Infiniti's products. Infiniti currently
owns rights to a multitude of products. Third, we can capitalize on
profitability from both the manufacturing and distribution of our products.
We plan to use the Infiniti distributor model as a footprint, coupled with a
plan to expand distribution using an affiliated network concept, for regional,
national and international distribution of our products.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2000 VS. THREE MONTHS ENDED JUNE 30, 2001
REVENUES. The Company reported record revenues for the three months
ended June 30, 2001. Revenues and other income (hereafter called revenues)
for the second quarter of 2001 were $488,364. We cannot compare the current
period to the corresponding prior period due to no revenue being generated in
the prior corresponding period.
TOTAL COSTS AND EXPENSES. Total costs and expenses increased from
$819,974 for the second quarter of 2000 to $2,031,589 in the second quarter of
2001. The increase of $1,211,615 related to continuing efforts to establish
operations in both of the Company's segments of business.
COST OF SALES. The Company's cost of sales for the second quarter
of 2001 was $757,868. These costs included direct labor, materials, and other
job related costs; and reflects costs of field testing the UrecoatsRSM-100(TM)
product in the South Florida local market. We cannot compare the costs of
sales for the current period to any corresponding prior period due to no costs
of sales being incurred for non-development-stage operations in the prior
corresponding period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the second quarter of 2001 were $419,693 compared
to $327,065 for the corresponding six months of 2000. The increase in selling,
general and administrative expenses of $92,628 for the three months ended
June 30, 2001, compared to that same period in 2000, is primarily due to
salaries, expenses and costs associated with continuing start-up efforts in
the roofing and waterproofing company and to develop and implement product
literature pieces, inclusive of a new web site (www.urecoats.com), and
introduction of the UrecoatsRSM-100(TM) product and BlueMAX(TM) multi-use
application system at the Florida Roofing and Sheet Metal Association
Convention, in Orlando, Florida.
Page 15
CONSULTING FEES. Consulting fees for the second quarter of 2001 were
$24,430 as compared to $127,644 for the same period in 2000. The decrease was
primarily due to the restructuring of contracts relating to consultants in the
technological arm of the company.
RESEARCH AND DEVELOPMENT. Research and development increased from
$237,944 for the second quarter of 2000 to $645,954 for the same period in
2000. The increase of $407,110 reflects the development of the BlueMAX(TM)
multi-use application system and research and testing on additional products.
OTHER INCOME AND EXPENSES, NET. Interest expense was $32,913 for
the second quarter of 2001 compared to $35,596 for the same period in 2000, a
decrease of $3,403. This decrease was primarily due to lower weighted average
borrowings for capital expenditures and working capital required for business
operations in both of the Company's segments during the second quarter of 2001.
INCOME TAX. The pre-tax loss for the second quarter of 2001 was
$(1,544,929) as compared to $(820,358) in the same quarter of 2000, an increase
of $724,571.
SIX MONTHS ENDED JUNE 30, 2000 VS. SIX MONTHS ENDED JUNE 30, 2001
REVENUES. The Company reported record revenues for the six months
ended June 30, 2001. Revenues and other income (hereafter called revenues) for
the six month period were $733,830. We cannot compare the current period to
the corresponding prior period due to no revenue being generated in the prior
corresponding period.
TOTAL COSTS AND EXPENSES. Total costs and expenses increased from
$2,319,216 for six months ended June 30, 2000 to $3,760,535 for the six month
ended June 30, 2001. The increase of $1,441,319 related to continuing efforts
to establish operations in both of the Company's segments of business.
COST OF SALES. The Company's cost of sales for the six months ended
June 30, 2001 was $1,096,447. These costs included direct labor, materials,
and other job related costs; and reflects costs of field testing the
UrecoatsRSM-100(TM) product in the South Florida local market. We cannot
compare the costs of sales for the current period to any corresponding prior
period due to no costs of sales being incurred for non-development-stage
operations in the prior corresponding period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the six months ended June 30, 2001 were $1,515,633
compared to $741,265 for the corresponding six months of 2000. The increase in
selling, general and administrative expenses of $774,368 for the six months
ended June 30, 2001, compared to that same period in 2000, is primarily due to
salaries, expenses and costs associated with continuing start-up efforts in the
roofing and waterproofing company, to establish manufacturing of the
UrecoatsRSM-100(TM) product and BLUEMAX(TM) application system, to produce
marketing programs and materials in preparation for the FRSA Convention and to
introduce the products and materials to the Southeastern United States Roofing
Contractors market.
Page 16
CONSULTING FEES. Consulting fees for the Six months ended June 30,
2001 were $111,740 as compared to $925,525 for the same period in 2000. The
decrease was primarily due to the restructuring of contracts relating to
consultants in the technological arm of the company.
RESEARCH AND DEVELOPMENT. The Company's research and development
for the six months ended June 30, 2001 was $688,010 as compared to $436,806
for the same period in 2000. The increase of $251,204 reflects the emphasis
to develop the BlueMAX(TM) multi-use application system, in addition to
testing and development of additional products.
OTHER INCOME AND EXPENSES, NET. Interest expense was $105,236 for
the six months ended June 30, 2001 compared to $53,241 for the same period in
2000, an increase of $51,995. This increase was primarily due to higher
weighted average borrowings for capital expenditures and working capital
required for business operations in both of the Company's segments during the
six months ended June 30, 2001.
INCOME TAX. The pre-tax loss for the six months ended June 30, 2001
was $(2,874,730) as compared to $(2,323,217) for the same period of 2000, an
increase of $551,513.
ESTABLISHMENT OF NEW SUBSIDIARIES
We established two new subsidiaries during the second quarter of 2001 as
part of our plan to expand our adhesives, sealants and coatings business
segment. Urecoats Manufacturing, Inc., a Florida corporation, organized on
June 20, 2001, was formed for the purpose of handling manufacturing related
operations. Urecoats Distribution, Inc., a Florida corporation, organized on
June 20, 2001, was formed for the purpose of handling distribution related
operations.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures during the three month period ended June 30, 2001
totaled $239,701 compared to $209,556 in the corresponding period of the prior
year. Additions to plant and equipment decreased from $223,015 during the
three month period ended June 30, 2000 to $208,845 during the current period.
Total liabilities decreased from $3,420,587 at December 31, 2000 to
$1,679,585 at June 30, 2001, primarily due to the Chairman of the Board and
CEO converting short-term loans payable, including interest, into equity
described elsewhere in this report. The total amount converted for the six
month period ended June 30, 2001 was $4,991,467, of which $2,408,000 in
principal and $37,467 in interest was outstanding at December 31, 2000. Total
debt as of June 30, 2001 and December 31, 2000, expressed as a percentage of
the sum of total debt and shareholders' equity, was 78.7% and 190.4%,
respectively. Total debt decreased from $4,091,526 at December 31, 2000 to
$2,353,524 at June 30, 2001.
Page 17
Net loss for the second quarter of 2001 was $(1,544,929), an increase of
88.3% from the net loss of $(820,358) for the second quarter of 2000. Diluted
net loss per common share rose 75% to $(0.014) for the second quarter of 2001
compared to $(0.008) for the same period in 2000. The net loss per share
calculation for the second quarter of 2001 includes an increase in actual and
equivalent shares outstanding.
We currently do not have the liquidity or capital resources to fund our
operations without raising capital either from borrowing or from the sale
of additional shares of stock. We anticipate further financing through short-
term and long-term loans and/or the sale of additional restricted common
stock to accredited sophisticated investors.
SEGMENT INFORMATION
Revenues for our adhesives, sealants and coatings operations were
$34,718 during the second quarter of 2001 as a result of continuing operations
and demand for the UrecoatsRSM-100(TM) product, through our roofing and
waterproofing operations. We cannot compare the revenues in the current
period to the corresponding prior period due to no revenues being generated in
the corresponding prior period. We just came out of research and development
with our flagship UrecoatsRSM-100(TM) product in the first quarter of this
year. We did not have operating profits during the second quarter of 2001.
Revenues for our roofing and waterproofing operations were $488,364
during the second quarter of 2001 as a result of demand for the Urecoats
RSM-100(TM) product and other conventional roofing products, in the South
Florida local market. We cannot compare the revenues in the current period
to any corresponding prior period due to no revenues being generated in the
corresponding prior period for these operations. We began our roofing and
waterproofing operations in the first quarter of this year. We did not have
operating profits during the second quarter of 2001.
FORWARD-LOOKING STATEMENTS
We have included forward-looking statements in this report. For this
purpose, any statements contained in this report that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "estimate" or "continue" or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, and actual results may differ materially depending on a
variety of factors. Factors that might cause forward-looking statements to
differ materially from actual results include, among other things, overall
economic and business conditions; demand for our goods and services;
competitive factors in the industries in which we compete or intend to
compete; raw materials availability and costs; success of implementing cost
reduction programs; and timing, impact and other uncertainties of our future
acquisition plans.
Page 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
The Company does not issue or invest in financial instruments or their
derivatives for trading or speculative purposes. The operations of the
Company are conducted primarily in the United States, and, as such, are not
subject to material foreign currency exchange risk. Although the Company
has outstanding debt and related interest expense, market risk in interest
rate exposure in the United States is currently not material.
PART II. OTHER INFORMATION
----------------------------
ITEM 1. LEGAL PROCEEDINGS
- ---------------------------
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- ---------------------------------------------------
RECENT SALES OF UNREGISTERED SECURITIES
During the quarterly period ended June 30, 2001, we issued restricted
common stock, for certain private transactions, in reliance on Section 4(2)
of the Act, as described below:
(1) We issued 20,000 shares of restricted common stock, as an employee
bonus, valued and recorded at $8,445.
(2) We issued 166,667 shares of restricted common stock, as other
compensation, to an officer of the Company, pursuant to an employment
agreement, valued and recorded at $67,250.13.
(3) We issued 10,000 shares of restricted common stock, as other
compensation, to an officer of the Company, pursuant to an employment
arrangement described elsewhere in this report, valued and recorded at
$4,222.50.
(4) We issued 100,000 shares of restricted common stock, for legal
services, valued and recorded at $41,025.
(5) We issued 3,308,954 shares of restricted common stock, pursuant to
the partial exercise of a restricted stock option, to the Chairman of the
Board and CEO of the Company, in exchange for cancellation of $1,455,939.76
in short-term loans bearing interest at 9% per annum, which he made to the
Company during the second quarter of this year. We granted the 3-year
restricted stock option on January 8, 2001, for the purchase of 12,000,000
shares of restricted common stock at $.44 per share, as consideration for his
agreement to continue funding the working capital requirements of the Company
up to $3,0000,000 and forbearing repayment of funds he advanced to the Company
during the year 2000, through the 2001 calendar year. As of June 30, 2001,
there remains outstanding 472,031 unexercised restricted stock options.
Page 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- -----------------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
None
ITEM 5. OTHER INFORMATION
- ---------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
EXHIBITS
10.1 Executive Compensation Description - John G. Barbar
10.2 Executive Compensation Description - Shirad Ali
REPORTS ON FORM 8-K
None
Page 20
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.
URECOATS INDUSTRIES INC.
(Registrant)
August 14, 2001 /s/ Timothy M. Kardok
--------------- ---------------------
Date Timothy M. Kardok
President and COO
August 14, 2001 /s/ John G. Barbar
--------------- ---------------------
Date John G. Barbar
Treasurer and CFO
Page 21
EXHIBIT INDEX
-------------
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------------------------------------
10.1 Executive Employment Description - John G. Barbar
10.2 Executive Employment Description - Shirad Ali
Page 22