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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the Quarterly Period Ended March 31, 1996 Commission file number 0-14427
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LA-MAN CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 38-2286268
(State or other jurisdiction (I.R.S. Employer
of incorporation or other organization) Identification Number)
2180 WEST STATE ROAD 434, SUITE 6136, LONGWOOD, FLORIDA 32779 (407) 865-5995
(Address, including zip code, and telephone number, including
area code, or registrant's office)
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Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 of 15(d) of the Securities 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. [x] Yes [ ] No
As of May 9, 1996, 3,022,665.67 shares of Common Stock were outstanding.
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ITEM 1. FINANCIAL INFORMATION
LA-MAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31,
1996
-------------------
(Unaudited)
ASSETS
Current assets:
Accounts receivable, net $ 1,672,936
Inventories - Note 2 1,126,530
Prepaid expenses 310,093
-----------
Total current assets 3,109,559
Property, plant and equipment, net 2,837,629
Other assets
Intangibles, net 2,482,160
Leased signs - long-term 443,553
Other 104,915
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3,030,628
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$ 8,977,816
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 945,872
Accrued expenses 631,715
Customer deposits 549,983
Current portion of long-term liabilities 274,438
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Total current liabilities 2,402,008
Long-term liabilities:
Long-term debt, less current portion - Note 4 2,157,460
Deferred income 160,341
Obligations under capital leases, less current portion 48,023
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2,365,824
Stockholders' equity:
Common stock 3,005
Additional paid-in capital 6,091,689
Accumulated deficit (1,884,710)
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Total stockholders' equity 4,209,984
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$ 8,977,816
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See accompanying notes to condensed consolidated financial statements.
2
LA-MAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
March 31, March 31,
------------------------- ------------------------
1996 1995 1996 1995
------------------------- ------------------------
Sales $10,036,150 $5,912,064 $3,173,065 $1,928,995
Cost of sales 4,974,834 2,705,184 1,646,800 857,423
----------- ---------- ---------- ----------
Gross profit 5,061,316 3,206,880 1,526,265 1,071,572
----------- ---------- ---------- ----------
Operating expenses:
Selling 1,964,483 931,721 691,100 295,896
General and administrative 2,893,794 2,088,860 1,030,258 716,929
Engineering 35,163 26,547 11,528 9,303
----------- ---------- ---------- ----------
4,893,440 3,047,128 1,732,886 1,022,128
----------- ---------- ---------- ----------
Income (loss) from operations 167,876 159,752 (206,621) 49,444
----------- ---------- ---------- ----------
Other income (expense):
Interest income 49,523 26,029 19,332 6,041
Interest expense (145,444) (28,977) (57,578) (8,226)
Officer termination costs - (95,000) - -
Gain (loss) on sale of equipment 10,532 5,700 (2,000) -
Other 2,440 (573) (5,035) 138
----------- ---------- ---------- ----------
(82,949) (92,821) (45,281) (2,047)
----------- ---------- ---------- ----------
Income (loss) before income taxes 84,927 66,931 (251,902) 47,397
Income taxes - - (15,140) -
----------- ---------- ---------- ----------
Net income (loss) $ 84,927 $ 66,931 $ (236,762) $ 47,397
=========== ========== ========== ==========
Net income (loss) per share $.03 $.03 $(.08) $.02
=========== ========== ========== ==========
Weighted average number of shares
outstanding 2,628,467 2,315,560 2,803,407 2,357,399
=========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
3
LA-MAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
-----------------------
1996 1995
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Cash flows from operating activities:
Net income $ 84,927 $ 66,931
Adjustments for non-cash charges 323,665 219,691
Changes in assets and liabilities (548,286) (189,810)
Gain on disposal of asset (10,532) (5,700)
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Net cash provided by (used for) operations (150,226) 91,112
---------- ---------
Cash flows used for investing activities:
Capital expenditures (344,956) (126,006)
Leased sign expenditures (143,830) -
Decrease in advances to Vision Trust Marketing, Inc. - 106,056
Purchase of Vision Trust Marketing, Inc.(net of cash acquired) - (259,597)
Patent expenditures (4,193) (2,536)
Proceeds from sale of asset 10,532 5,700
Payment for DBI, net of cash acquired of $59,820 (409,748) -
Other 11,747 92,443
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Net cash used for investing activities: (880,448) (183,940)
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Cash flows from financing activities:
Proceeds from sale of common stock 10,000 120,384
Proceeds from revolving line of credit 264,117 -
Payment for exercise (purchase) of outstanding warrants 248,063 (2,500)
Net payments on capital lease obligations (23,069) (11,260)
Increase(decrease) in notes payable and debt 167,032 (299,997)
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Net cash provided by (used for) financing activities 666,143 ( 193,373)
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Decrease in cash (364,531) (286,201)
Cash, beginning of period 364,531 370,650
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Cash, end of period $ -0- $ 84,449
========== ==========
Supplemental non-cash investing and financing activities:
Issuance of common stock for DBI 1,100,000
Issuance of convertible note for DBI 750,000
Issuance of common stock for 401K matching contribution 45,588
See accompanying notes to condensed consolidated financial statements.
4
LA-MAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods. This report should be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1995 and Quarterly Reports on
Form 10-QSB for the first and second quarters ended September 30, 1995 and
December 31, 1995, respectively.
The results of operations for the nine months and three months ended
March 31, 1996 are not necessarily indicative of the results to be expected for
the full year.
In November 1994, the Company completed the purchase of Vision Trust
Marketing, Inc. ("VTM") and in September 1995, the Company completed the
purchase of Don Bell Industries, Inc. ("DBI") See Note 7. Both VTM's and DBI's
results of operations since acquisition are included in the results for the
current fiscal quarter and nine months ended March 31, 1996. VTM's operations
were included in the 1995 periods from the date of acquisition, whereas DBI's
operations are not included for the same periods in 1995.
NOTE 2- INVENTORIES
Inventories at the end of interim periods are based on perpetual
inventory records. Inventories consist of the following:
March 31,
1996
-----------
(Unaudited)
Raw materials and work in progress $885,982
Finished goods 159,501
Cartons and supplies 81,047
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$ 1,126,530
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NOTE 3- LINE OF CREDIT AND REFINANCING
In December, 1995, the Company completed the refinancing of its line
of credit and a major portion of the debt assumed in the acquisition of DBI in
September of 1995.
The Company entered into a $500,000 revolving line of credit with a
two-year term ending December 27, 1997 with interest adjustable at 1 percent
over the prime rate published in the Wall Street Journal. The revolving line of
credit requires interest to be paid monthly with the principal due at the end of
the term. The Company also entered into a $250,000 five- year term loan ending
December 27, 2000 with interest adjustable at 2 percent over the prime rate
published in the Wall Street Journal. The term loan
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requires $4,166.67 of principal and interest to be paid monthly. These loans
require the Company to maintain a tangible net worth of $750,000 which increases
to $1,500,000 at June 30, 1996, a 3 to 1 interest coverage and a cash flow
coverage of 2.5 to 1 at each fiscal year end. The loans are secured by accounts
receivables, inventories, real estate and subsidiary guarantees.
At the same time, the Company entered into a new mortgage loan secured
by the DBI building and land in the amount of $840,000. The mortgage loan is
based on a twenty-year amortization with a five-year term and has an adjustable
interest rate of 1 1/2 percent over the prime rate published in the Wall Street
Journal. At the current prime rate, the monthly payment of principal and
interest is $8,106.18.
Concurrent with this financing, the Company paid off its old line of
credit and the DBI long-term debt except for a $125,255 mortgage loan secured by
certain land. The outstanding balance on the revolving line of credit was
$264,117 at March 31, 1996 and $120,100 at May 9, 1996.
In February 1996, the Company purchased a building in Port Orange,
Florida for $162,500 plus expenses, as part of its plan to move its filter
division to Florida in May 1996. The building was financed by a one year note
in the amount of $146,250 with interest payable monthly at prime plus 1%. The
note is intended to be paid off with the proceeds from the sale of the
lubrication and filter division's building and land in Hamilton, Indiana when
sold.
NOTE 4- LONG-TERM DEBT
Long-term debt consists of the following:
Five-year term convertible note with an 8% coupon
payable semi-annually and principal payable in equal
annual installments beginning in September 1998.
The note has a call provision starting at 105 in
year one declining to 100 in year five. The note
may be converted into common stock of La-Man
Corporation at $5.00 a share at any time by the
holder. $ 750,000
Mortgage loan secured by DBI land and building with
monthly principal and interest payments of $8,106.18.
Interest is adjustable and based on 1 1/2 percent over
the prime rate quoted in the Wall Street Journal.
The remaining principal is due December 27, 2000. 836,577
Term loan with 60 monthly payments of $4,166.67 plus
interest adjustable at 2 percent over prime and secured
by receivables, inventory, real estate and subsidiary
guarantees. 237,500
Revolving line of credit up to $500,000 maturing on
December 27, 1997 with interest at 1 percent over prime,
payable monthly. 264,117
A one-year note with interest, adjustable at 1 percent
over prime. Principal is due at February 28, 1997 or
earlier on the completion of the sale of the building
and land in Hamilton, IN. 146,250
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DBI mortgage note bearing interest at 9%, monthly
principal and interest payments of $1,420 through
April 2008, secured by certain land. 125,255
Unsecured note to a supplier payable in 18 equal
monthly payments of $3,265.28 with interest at
8.5 percent, beginning May 2, 1996 55,000
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2,414,699
Less current portion 257,239
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Total 2,157,460
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NOTE 5- SALE OF STOCK
In January and February 1996, the SD warrant holders exercised 330,750
warrants to purchase common stock of the Company at an exercise price of $.75
per share for net proceeds to the Company of $248,062. The remaining 3,000
unexercised expired on February 28, 1996.
In March 1996, the Company privately sold 10,000 newly issued shares
of common stock for $1 per share for net proceeds of $10,000. In addition, the
Company has agreed with a supplier to issue 36,000 shares of common stock at a
price of $1.25 per share in consideration of a $45,000 reduction in certain
indebtedness of DBI to the supplier. This transaction had not been completed at
May 9, 1996, pending issuance instructions from the supplier.
NOTE 6- EMPLOYEE DEPARTURE COSTS
The Company accrued costs of $95,000 related to the departure of two
executive officers/employees of the Company effective September 28, 1994.
Financial and other terms of these employee departures were negotiated and paid
as of September 1995.
NOTE 7- ACQUISITIONS
In November 1994, the Company purchased all of the shares of common
stock of VTM in consideration of the cancellation of a note receivable in the
amount of $180,195. VTM is an authorized agent of MCI Telecommunications
Corporation ("MCI") and generates commissions from MCI through the solicitation
and sale of MCI long distance services. The Company also entered into a
consulting agreement with the former shareholder of VTM. Under that consulting
agreement, the former owner received 70,000 newly issued shares of registered
common stock of the Company under its 1994 Amended and Restated Employee and
Consultant Stock Compensation Plan for services to be rendered over the life of
the agreement. The consulting agreement also calls for the consultant to
receive a share of the future commissions received by VTM from MCI, ranging
between 5 and 10 percent based on certain achieved commission levels. The
acquisition has been accounted for by the purchase method of accounting, and the
purchase price of $180,195 approximated the fair value of the net assets
acquired including goodwill of $215,493. The operating results of VTM are
included in the Company's consolidated results of operations from the date of
acquisition.
On September 7, 1995, the Company acquired all of the outstanding
common stock, all of
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the outstanding 8% cumulative preferred stock and $935,091 of notes receivable
of Don Bell Industries, Inc. for total consideration of $2,319,568 comprised of
the following:
1) Cash of $360,000 to the sellers and expenses incurred of
$109,568
2) $750,000 convertible note with the following provisions:
a) Coupon - 8%, payable semiannually
b) Conversion price - $5.00 per share
c) Term - five years payable in equal annual installments
beginning September 1998
d) Call provision - 105 in year one declining to 100 in year
five
3) 275,000 newly issued shares of common stock
4) Additional cash, common stock or debt at the Company's option,
contingently issuable should the market price of the Company's
common stock not exceed $4 per share for any consecutive
20-day period prior to December 31, 1996
The acquisition has been accounted for by the purchase method of
accounting. The operating results of DBI are included in the Company's
consolidated results of operations from the date of acquisition.
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LA-MAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
The following discussion should be read in conjunction with
management's discussion and analysis of financial condition and results of
operations set forth in the Company's Annual Report on Form 10-KSB for the year
ended June 30, 1995 filed with the Securities and Exchange Commission on
September 28, 1995, which discussion is incorporated herein by reference.
NINE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995
- ---------------------------------------------------
The results of operations for the nine months ended March 31, 1996
include the operations of VTM and DBI which were acquired in November 1994 and
September 1995, respectively,and accounted for as purchase transactions. VTM's
and DBI's operating results for the nine months ended March 31, 1996 are as
follows:
VTM DBI
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(In 000's)
Sales $ 368 $3,230
Cost of Sales 59 2,069
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Gross Profit 309 1,161
Operating Expenses 524 946
----- ------
Income (Loss) from Operations (215) 215
Interest Income - 29
Interest Expense - (127)
Gain on Sale of Equipment - 8
----- ------
Income (Loss) Before Income Taxes ($215) $ 125
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Sales for the nine months ended March 31, 1996 were $10,036,150, an
increase of $4,124,086 or 70%. Net income increased to $84,927 as compared to
the prior nine months net income of $66,931. Earnings per share of $.03 in the
current nine-month period was equal to the prior nine month period.
Absent the acquisition of DBI: 1) consolidated sales of $6,806,150
represented an increase of $894,086 or 15% over the nine months ended March 31,
1995; 2) for the same period an operating loss of $47,124 for the period
compared to operating income of $159,752; 3) the gross profit of $3,900,316 was
an improvement of $693,436 or 22% over the comparible period in 1995 and 4) the
gross profit margin improved from 54% to 57%.
The lubrication and filtration division's sales of $1,227,879
represented a decrease of $41,266 or 3%. Gross profit of $744,886 represented a
decrease of $10,443 or 1%. A higher gross margin percentage of 61% as compared
to 60% prevented a further profit erosion from the sales decline. The
9
packaging operations' sales decreased $224,084 or 24% to $702,898 due to a
complete turnover of the sales force and an emphasis on higher margin products.
The Company is optimistic that the recent changes made in management will
improve this operation in the near future.
The long-distance telephone services telemarketing operation had sales
of $367,998 compared to $8,249 in the prior period. Operating losses in the
current period were $215,165 , an increase of $144,680 from the prior period. A
new more lucrative contract has been negotiated with MCI and management is
optimistic that operating results will improve in the coming year.
The church and school sign marketing operations' sales of $4,573,376
increased from $3,720,791 or 23%. The increase was basically due to record
orders booked in June in advance of a price increase and the increase in the
trained sales force added in the prior year. The gross margin increased in line
with the sales increase.
Excluding DBI, operating expenses of $3,947,440 in the nine months
ended March 31, 1996 represented an increase of $900,312 or 30% as compared to
the nine months ended March 31, 1995. The primary reasons for the increase were
higher costs related to the church and school sign marketing operations which
incurred greater selling and support costs related to the increase in revenues.
The telemarketing operation which expanded this year also had higher selling and
administrative costs. In addition, corporate expenses increased related to the
Company's annual report, proxy statement and shareholders meeting.
Other expenses of $82,949 decreased from $92,821 for the nine months
ended March 31, 1995. The Company recorded a charge of $95,000 for costs
related to the dismissal of two officers by the Board of Directors in September
1994. See Note 6 to Financial Statements. Interest expense increased in 1996
due primarily to the debt incurred with the DBI acquisition.
THREE MONTHS ENDED MARCH 31, 1996 VS. MARCH 31, 1995
- ----------------------------------------------------
The results of operations for the quarter ended March 31, 1996 include
the operations of Vision Trust Marketing, Inc. ("VTM") and Don Bell Industries
("DBI") which were acquired in November 1994 and September 1995, respectively,
and accounted for as purchase transactions. VTM's and DBI's operating results
for the three months ended March 31, 1996 are as follows:
VTM DBI
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(In 000's)
Sales $ 118 $1,068
Cost of Sales 19 742
----- ------
Gross Profit 99 326
Operating Expenses 202 421
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(Loss) from Operations (103) (95)
Interest Income - 11
Interest Expense - (49)
(Loss) on Sale of Equipment - (2)
----- ------
(Loss) before Income Taxes $(103) $ (135)
===== ======
10
Absent the acquisition of DBI, consolidated sales of $2,105,065
increased $176,070 or 9% as compared with the three months ended March 31, 1995.
The gross profit of $1,200,265 was an improvement of $128,693 or 12%. The gross
profit margin improved to 57% versus 56% in the comparative three month period.
The lubrication and filtration division's sales of $429,595 was an
increase of $5,474 or 1% with gross profits increasing to $259,647 from
$256,170. The packaging operations' sales decreased by $14,592 or 6% to
$240,444 in the quarter ending March 31, 1996 due to changes in the sales force
and emphasis on higher margin products. The gross margin percentage decreased
to 21% from 23% in the prior period due to a write-down of inventory.
The church and school sign marketing operations' sales of $1,330,203
increased from $1,248,825 in the quarter ending March 31, 1996, an increase of
$81,378 or 7% due primarily to the increased trained sales force added in the
prior year. Bad weather in the Northern states impacted orders and shipments in
the quarter. Gross margins increased to $790,176 from $751,363, an increase of
$38,813 or 5% due primarily to the increased sales.
VTM, the Company's long-distance telemarketing subsidiary, had sales
of $118,573 in the current quarter vs. $5,678 in the prior quarter. Operating
losses of $103,123 were higher by $59,266, the result of continued investment in
the development of this operation.
Excluding DBI, operating expenses of $1,311,886 for the quarter
represented an increase of $289,758 or 28% as compared to the quarter ending
March 31, 1995. The primary reason for the increase was higher costs related to
the church and school sign marketing operations and the telemarketing operation
both of which incurred greater selling and administrative costs.
Other expenses of $45,281 increased from $2,047 for the three months
ended March 31, 1995 primarily due to higher interest costs related to the DBI
acquisition.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity and capital resources will be discussed in three broad
categories, namely, operating, investing, and financing activities. The cash
available at June 30, 1995 of $364,531 was completely used at March 31, 1996.
Net cash used for operating activities in the nine-month period ending
March 31, 1996 was $150,226. Net income of $84,927 and non-cash charges for
depreciation and amortization of $323,665 were more than offset by the net
changes in assets and liabilities of $548,286.
Net cash used for investing activities of $880,448 related largely to
the payment for DBI of $469,568 less the cash acquired with the acquisition of
$59,820. The Company also used $344,956 for capital expenditures primarily for
its new facility in Port Orange, Florida for the lubrication and filter
operation. DBI also invested $143,830 in new leased signs in the period.
Net cash provided by financing activities for the nine-month period
ending March 31, 1996 was $666,143. The Company took down $264,117 of its new
$500,000 revolving line of credit. The
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Company has since reduced another $144,017 of its line of credit balance
leaving an available balance of $379,900 at May 9, 1996.
In January and February 1996, 330,750 SD Warrants were converted to
La-Man Corporation common stock for net proceeds to the Company of $248,063 and
10,000 unregistered shares of common stock were sold for a net proceeds of
$10,000.
The Company completed its debt refinancing in December 1995 by
entering into a $500,000 two-year term revolving line of credit, a new mortgage
on DBI's principal manufacturing facility in the amount of $840,000 based on a
twenty-year amortization for a five-year term and a $250,000 five-year term loan
repayable at $4,166.67 a month plus interest. In February 1996, the Company
entered into a one-year note on its new facility for the filter division in the
amount of $146,250. The Company intends to repay this note with the proceeds
from the sale of the Company's lubrication and filter division's facility in
Hamilton, Indiana. See Note 3 to Financial Statements.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ---------------------------
Not applicable
ITEM 2. CHANGES IN SECURITIES.
- -------------------------------
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- -----------------------------------------
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY - HOLDERS.
- --------------------------------------------------------------
Not applicable
ITEM 5. OTHER INFORMATION.
- --------------------------
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- -------------------------------------------
La-Man Corporation Current Report on Form 8-K dated December 27, 1995 and
filed with the Securities and Exchange Commission on January 12, 1996, with
respect to the refinancing of certain indebtedness of La-Man Corporation and its
subsidiaries.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LA-MAN CORPORATION
Date: May 9, 1996 By: /s/ J. William Brandner
--------------------------------------
J. William Brandner, President & Chief
Executive Officer
By: /s/ Otto J. Nicols
---------------------------------------
Otto J. Nicols, Vice President & Treasurer,
Chief Financial Officer & Chief Accounting
Officer
14