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 June 30, 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 October 31, 1995
---------------------------- -------------------------------
Common stock, $.01 par value 8,544,105
<PAGE>
THE LORI CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets
September 30, 1995 and December 31, 1994 2
Condensed Consolidated Statements of Operations
for the three and nine months ended September 30, 1995 and 1994 4
Condensed Consolidated Statement of Changes in Shareholders'
Equity (Deficit) for the nine months ended September 30, 1995 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
</TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands)
<TABLE>
<CAPTION>
Sept 30, Dec 31,
1995 1994
------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 2 $ 783
Restricted cash and equivalents 550
Receivables, less allowance for
doubtful accountsand markdowns of $1,338 814
Inventories 2,105
Other 35 260
Assets of discontinued operations
held for disposal 4,488
------- --------
Total current assets 4,525 4,512
------- --------
Property, plant and equipment 1,563
Less accumulated depreciation and amortization 1,119
------
444
------
Other assets:
Excess of cost over net assets acquired,
net of accumulated amortization of $3,415 13,140
Other 753 608
------- --------
753 13,748
------- --------
$ 5,278 $ 18,704
======= ========
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited in thousands)
<TABLE>
<CAPTION>
Sept 30, Dec 31,
1995 1994
------- --------
<S> <C> <C>
LIABILITIES
Current liabilities:
Notes payable, including amounts
due to related party of $775 $ 2,586
Current maturities of long-term debt $ 750
Accounts payable 736 3,414
Accrued expenses 476 905
Due to (from) ARTRA (76) 289
Obligations expected to be settled by
the issuance of common stock 3,000
Liabilities of discontinued operations
held for disposal 4,517
------- --------
Total current liabilities 11,239 5,358
------- --------
Debt subsequently discharged 7,105
--------
Other noncurrent liabilities 955 963
------- --------
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 3,656 shares in 1995 and
3,265 shares in 1994 36 32
Less restricted common stock (100 shares) (700)
Additional paid-in capital 66,123 65,392
Accumulated deficit (92,590) (78,961)
------- --------
(6,916) 5,278
------- --------
$ 5,278 $ 18,704
======= ========
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
<S> <C> <C> <C> <C>
1995 1994* 1995 1994*
------- ------- --------- --------
Selling, general and administrative $ 3,038 $ 246 $ 3,265 $ 692
Interest expense 279 376 410 959
Other (income) expense, net 26 (2)
------- ------- --------- --------
Loss from continuing operations
before income taxes and extraordinary credit (3,343) (620) (3,675) (1,651)
Provision for income taxes ------- ------- --------- --------
Loss from continuing operations (3,343) (620) (3,675) (1,651)
Loss from discontinued operations (1,821) (1,016) (16,611) (2,732)
------- ------- --------- --------
Loss before extraordinary credit (5,164) (1,636) (20,286) (4,383)
Extraordinary credit, net discharge of indebtedness 6,657
------- ------- --------- --------
Net earnings (loss) $(5,164) $(1,636) $ (13,629) $ (4,383)
======= ======= ========= ========
Earnings (loss) per share:
Continuing operations $ (1.04) $ (.19) $ (1.14) $ (.52)
Discontinued operations (.46) (.32) (5.00) (.86)
----- ----- ------ -----
Loss before extraordinary credit (1.50) (.51) (6.14) (1.38)
Extraordinary credit 2.04
----- ----- ------ -----
Net earnings (loss) $ (1.50) $ (.51) $ (4.10) $ (1.38)
======= ====== ======== =======
Weighted average number of shares of common stock and
common stock equivalents outstanding 3,444 3,214 3,321 3,183
======= ======= ======= =======
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
____________________
* As reclassified for discontinued operations.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited in thousands, except share data)
<TABLE>
<CAPTION>
Total
Preferred Stock Common Stock Restricted Common Additional Shareholders'
--------------- ---------------- ----------------- Paid-in Accumulated Equity
Shares Dollars Shares Dollars Shares Dollars Capital (Deficit) (Deficit)
------ ------- --------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 9,701 $19,515 3,265,019 $32 100,000 ($700) $65,392 ($78,961) $5,278
Net earnings - - - - - (13,629) (13,629)
Common stock issued as
consideration for
debt restructuring - - 150,000 2 - - 335 - 337
Common stock issued as
additionalconsideration
for short-term borrowings - - 141,176 1 - - 229 - 230
Common stock issued as
additional consideration
for Yield purchase guarantee - - 100,000 1 - - 167 - 168
Restricted common stock
issued as additonal
consideration for
short-term borrowings - - - - (100,000) 700 - - 700
Fractional shares purchased - - (60) - - - - - -
------ ------- --------- --- ------- ------- ------- -------- --------
Balance at September 30, 1995 9,701 $19,515 3,656,135 $36 - - $66,123 ($92,590) ($6,916)
======= ======= ========= === ======= ======= ======= ======= ========
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1995 1994
------- ---------
<S> <C> <C>
Net cash flows used by operating activities, $(2,533) $ (1,684)
------- ---------
Cash flows from investing activities:
Payment of liabilities with restricted cash 550 -
Additions to property, plant and equipment (20) (28)
Investment in Yield Global (753) -
Retail fixtures (631) (514)
------- ---------
Net cash flows used by investing activities (854) (542)
------- ---------
Cash flows from financing activities:
Net increase (decrease) in short-term debt,
including liabilities of discontinued operations 3,356 (138)
Proceeds from long-term borrowings - 1,241
Reduction of long-term debt (750) (433)
ARTRA capital contribution - 1,500
Other - 9
------- ---------
Net cash flows from financing activities 2,606 2,179
------- ---------
Decrease in cash and cash equivalents (781) (47)
Cash and equivalents, beginning of period 783 540
------- ---------
Cash and equivalents, end of period $ 2 $ 493
======= =========
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 131 $ 282
Income taxes paid, net 9 23
Supplemental schedule of noncash investing
and financing activities:
Common stock issued as consideration for
debt restructuring and short-term loans 567 -
ARTRA common stock issued to Lori's
bank lender under terms of
Lori's debt settlement agreement - 2,500
Lori common stock issued to Lori's
bank lender under terms of
Lori's debt settlement agreement - 700
<FN>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
At September 30, 1995, ARTRA GROUP INCORPORATED ("ARTRA"), a public company
whose shares are traded on the New York Stock Exchange, owned, through its
wholly-owned subsidiary Fill-Mor Holding, Inc. ("Fill-Mor"), approximately 62.9%
of the common stock and all of the outstanding preferred stock of The Lori
Corporation ("Lori" or the "Company"). At September 30, 1995, Lori operated 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 September 30, 1995, and the results of operations and
changes in cash flows for the nine month periods ended September 30, 1995 and
September 30, 1994. The Company has incurred losses from its fashion costume
jewelry operations in recent years and at September 30, 1995, had a deficiency
of working capital and did not have sufficient financing facilities in place for
the remainder of 1995. No assurances can be given that either the business and
operations of Lori or the market conditions in the fashion costume 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. In September 1995, Lori adopted a plan to
discontinue its fashion costume jewelry business as discussed in Note 3.
As discussed in Note 2, on September 11, 1995, Lori signed a stock purchase
agreement to participate in the acquisition of one hundred percent of the
capital stock of Spectrum Global Services, Inc. d/b/a YIELD Global ("YIELD"), a
wholly owned subsidiary of Spectrum Information Technologies, Inc. for
consideration consisting of cash of approximately $6 million, net of cash
acquired, and 450,000 Lori common shares issued as consideration for various
fees and guarantees associated with the transaction. Additionally, in
conjunction with the Yield acquisition, ARTRA has agreed to assume certain
pre-existing Lori liabilities and indemnify Lori in the event any future
liabilities arise concerning pre-existing environmental matters and business
related litigation. YIELD provides telecommunications and computer technical
staffing services worldwide to Fortune 500 companies and maintains an extensive,
global database of technical specialists, with an emphasis on wireless
communications capability. On October 17, 1995, Lori completed the acquisition
of one hundred percent of the capital stock of YIELD. The acquisition of Yield
was funded principally by private placements of approximately 1,900,000 Lori
common shares at $3.00 per share (total proceeds of approximately $5,700,000)
plus detachable warrants to purchase approximately 950,000 Lori common shares at
$3.375 per share. The warrants expire three years from the date of issue.
It is anticipated that Lori's entry into the telecommunications and computer
technical staffing services business through the acquisition of Yield will
provide Lori with sufficient liquidity and capital resources to fund its
operations for the remainder of 1995 and beyond. Lori continues to search for
additional funding , either through borrowings or equity infusions to expand its
entry into the telecommunications and computer technical staffing services
business.
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.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
2. YIELD GLOBAL ACQUISITION
On September 11, 1995, Lori signed a stock purchase agreement to participate in
the acquisition of one hundred percent of the capital stock of Spectrum Global
Services, Inc. d/b/a YIELD Global ("YIELD"), a wholly owned subsidiary of
Spectrum Information Technologies, Inc. ("Spectrum") for consideration
consisting of cash of approximately $6 million, net of cash acquired, and
450,000 Lori common shares issued as consideration for various fees and
guarantees associated with the transaction. The cash consideration included net
cash payments to the selling shareholders of approximately $5.1 million. The
450,000 Lori common shares issued as consideration for the Yield transaction
included 150,000 shares issued to Peter R. Harvey, a director of the Company and
the president of ARTRA and 100,000 shares issued to ARTRA for their guarantee to
the selling shareholder of the payment of the Yield purchase price at closing.
The shares issued to Peter R. Harvey and ARTRA are subject to approval by Lori's
shareholders. Additionally, in conjunction with the Yield acquisition, ARTRA has
agreed to assume certain pre-existing Lori liabilities and indemnify Lori in the
event any future liabilities arise concerning pre-existing environmental matters
and business related litigation. YIELD provides telecommunications and computer
technical staffing services worldwide to Fortune 500 companies and maintains an
extensive, global database of technical specialists, with an emphasis on
wireless communications capability. The acquisition of YIELD, completed on
October 17, 1995, will be accounted for by the purchase method.
The acquisition of Yield was funded principally by private placements of
approximately 1,900,000 Lori common shares at $3.00 per share (total proceeds of
approximately $5,700,000) plus detachable warrants to purchase approximately
950,000 Lori common shares at $3.375 per share. The warrants expire three years
from the date of issue.
The following unaudited pro forma condensed consolidated balance sheet at
September 30, 1995 presents the financial position of the Company at September
30, 1995 as if the acquisition of Yield and the related private placement of
Lori common shares had been consummated as of September 30, 1995. The unaudited
pro forma condensed consolidated statements of operations for the nine months
ended September 30, 1995 and 1994, present the Company's results of operations
as if the acquisition of Yield and the related private placement of Lori common
shares had been consummated as of January 1, 1994.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
THE LORI CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1995
(In thousands)
<CAPTION>
Pro Forma
Historical Yield Adjustments Pro Forma
---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Current assets $ 4,525 $ 3,179 $ 5,700 (A)
(6,538) (B) $ 6,866
Property, plant and equipment, net 94 94
Excess of cost over net assets acquired, net 2,150 2,974 (C) 5,124
7,238 (B)
Other 753 25 (7,991) (C) 25
---------- ---------- --------- --------
$ 5,278 $ 5,448 $ 1,383 $ 12,109
========== ========== ========= ========
Current liabilities $ 11,239 $ 431 $ (3,000) (D) $ 5,994
(2,676) (E)
Other noncurrent liabilities 955 (955) (E)
5,700 (A)
700 (B)
(5,017) (C)
3,000 (D)
Shareholders' equity (deficit) (6,916) 5,017 3,631 (E) 2,484
---------- ---------- --------- --------
$ 5,278 $ 5,448 $ 1,383 $ 12,109
========== ========== ========= ========
<FN>
Pro forma adjustments to the unaudited condensed consolidated balance sheet
consist of:
(A) Record private placement of 1.9 million Lori common shares at $3.00 per
share to fund Yield acquisition.
(B) Record acquisition of Yield and reflect related acquisition costs.
(C) Eliminate investment in Yield and adjust goodwill arising from the
acquisition.
(D) Issue Loricommon stock to settle obligations accrued at September 30,
1995.
(E) Lori liabilities to be assumed by ARTRA.
</FN>
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (continued)
THE LORI CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended September 30, 1995
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
Historical Yield Adjustments Pro Forma
---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales $ 9,007 $ 9,007
---------- ---------
Operating costs and expenses $ 3,265 7,929 $ 257 (A) 11,451
Spectrum corporate administrative charges (C) 286 286
---------- ---------- ---------
3,265 8,215 11,737
---------- ---------- ---------
Operating earnings (loss) (3,265) 792 (2,730)
Interest and other non-operating expenses (410) 410 (B)
---------- ---------- ---------
Loss from continuing operations before income taxes (3,675) 792 (2,730)
Provision for income taxes (73) (73)
---------- ---------- ---------
Earnings (loss) from continuing operations $ (3,675) $ 719 $ (2,803)
========== ========== =========
Earnings (loss) per share from continuing operations $ (1.14) $ (.32)
========== =========
Weighted average shares outstanding (D) 3,321 8,771
========== =========
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
<TABLE>
THE LORI CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended September 30, 1994
(In thousands)
<CAPTION>
Pro Forma
Historical Yield Adjustments Pro Forma
---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales $ 5,968 $ 5,968
---------- ---------
Operating costs and expenses $ 692 5,442 $ 257 (A) 6,391
Spectrum corporate administrative charges (C) 571 571
---------- ---------- ---------
692 6,013 6,962
---------- ---------- ---------
Operating earnings (loss) (692) (45) (994)
Interest and other non-operating expenses (959) (959)
---------- ---------- ---------
Loss from continuing operations before income taxes (1,651) (45) (1,953)
Provision for income taxes
---------- ---------- ---------
Earnings (loss) from continuing operations $ (1,651) $ (45) $ (1,953)
========== ========== =========
Earnings (loss) per share from continuing operations $ (.52) $ (.22)
========== =========
Weighted average shares outstanding (D) 3,183 8,733
========== ========
<FN>
Pro forma adjustments to the unaudited condensed consolidated statement of
operations:
(A) Amortization of goodwill arising from the Yield acquisition.
(B) Reverse interest expense on notes and other liabilities assumed by
ARTRA.
(C) Corporate administrativecharges from Yield's former parent, of
Spectrum Information Technologies, Inc. The amount of these
administrative charges may not be representative of costs to be
incurred by Yield on a stand alone basis.
(D) Pro forma weighted average shares outstanding includes Lori shares
issued in the private placement that funded the Yield transaction,
Lori shares issued for fees and costs associated with the Yield
acquisition and Lori shares issued to settle obligations accrued at
September 30, 1995.
</FN>
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
3. DISCONTINUED OPERATIONS
In September 1995, the Company adopted a plan to discontinue the Company's
fashion costume jewelry business and recorded a provision of $1,000,000 for the
estimated costs to complete the disposal of the fashion costume jewelry
business.
The Company's condensed consolidated financial statements have been reclassified
to report separately assets and liabilities and results of operations of the
discontinued fashion costume jewelry business. At September 30, 1995, current
assets of the discontinued fashion costume jewelry business consist principally
of accounts receivable and inventory, while current liabilities consist
principally of accounts payable, other trade related debt and the above
mentioned provision of $1,000,000 for the estimated costs to complete the
disposal of the fashion costume jewelry business. The December 31, 1994
condensed consolidated balance has not been reclassified.
The 1995 and 1994 operating results of the discontinued fashion costume jewelry
business consists of:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $ 2,949 $ 8,078 $ 10,588 $ 26,394
---------- ---------- ---------- ---------
Operating expenses 3,770 8,823 13,262 28,406
Goodwill impairment 12,930
Interest and other expense (2) 267 2 706
---------- ---------- ---------- ---------
3,768 9,090 26,194 29,112
---------- ---------- ---------- ---------
Earnings(loss)from operations
before income taxes (819) (1,012) (15,606) (2,722)
Provision for income taxes (2) (4) (5) (10)
---------- ---------- ---------- ---------
Earnings (loss) from operations $ (821) $ (1,016) $ (15,611) $ (2,732)
---------- ---------- ---------- ---------
Provision for disposal of business $ (1,000) $ (1,000)
Provision for income taxes
---------- ---------- ---------- ---------
$ (1,000) $ (1,000)
---------- ---------- ---------- ---------
Loss from discontinued operations $ (1,821) $ (1,016) $ (16,611) $ (2,732)
========= ========== ========== ========
</TABLE>
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
At March 31, 1995 and at December 31, 1994, the Company's business plan had
anticipated that the restructuring of its debt (see Note 4), along with a
consolidation and restructuring of its operations would permit it to obtain a
sufficient level of borrowings to fund its capital requirements in 1995 and
beyond. With the above business plan in place, funded by an adequate level of
conventional working capital borrowings, it was anticipated that future cash
flows from operations would be sufficient to recover the carrying value of the
Company's goodwill.
During the second quarter of 1995, due primarily to competitive conditions in
the costume jewelry industry, the Company experienced a reduction in business
with certain major customers. Additionally, the Company discontinued certain
unprofitable programs with other customers resulting in charges to operations
for merchandise credits and inventory valuation allowances totaling $450,000.
Due to the continued losses from operations and the inability of the Company to
obtain conventional bank financing, the Company determined that its remaining
goodwill balance could no longer be recovered over its remaining life through
forecasted future operations. Accordingly, the Company recorded a charge against
operations of $12,930,000 ($3.89 per share) to write-off all of the goodwill of
its costume jewelry operations at June 30, 1995.
4. 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 terminated 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.
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 advanced to Lori and used to fund amounts due the bank as
discussed below. The loan, due June 30, 1995, with interest payable monthly at
10%, was 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, were carried in the Company's condensed consolidated
balance sheet at June 30, 1995 and December 31, 1994 as restricted common stock.
In August, 1995 the loan was extended until September 15, 1995 and the lender
received the above mentioned 100,000 Lori common shares as consideration for the
loan extension. The loan has not been paid as of November 15, 1995 and ARTRA has
entered into discussions to extend the due date of the loan.
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.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
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 at estimated fair value (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 ($2.04 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
========
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
5. INVENTORIES
Inventories at December 31, 1994 (in thousands) consist of:
Raw materials and supplies $ 115
Work in process 19
Finished goods 1,971
-------
$ 2,105
=======
6. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt (in thousands) consists of:
<TABLE>
<CAPTION>
Sept 30, December 31,
1995 1994
-------- --------
<S> <C> <C>
Notes payable
Amount due to a related party,
interest at the prime rate plus 1% $ 750
Accounts receivable credit facility 770
Other, interest principally at 15% 1,836
--------
3,356
Less amounts classified as
liabilities of discontinued operations (770)
--------
$ 2,586
========
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)
--------
$
=========
</TABLE>
As discussed in Note 4, 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
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
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.
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 4). 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. The principal amount of the loan
was reduced to $775,000 at June 30, 1995 and further reduced to $750,000 at July
31, 1995. The remaining loan principle was not repaid on its scheduled to
maturity date of July 31, 1995. Per terms of the loan agreement, the Lori
director received an additional 50,000 Lori common shares as compensation for
the non-payment of the loan at its originally scheduled maturity. The maturity
date of the loan was subsequently extended to September 30, 1995. The Company
has entered into discussions with the director to extend the maturity date of
the loan.
During the second and third quarters of 1995, Lori entered into a series of
agreements with certain unaffiliated investors that provided for $1,800,000 of
short-term loans that provide for interest at 15%. As additional compensation
the lenders received an aggregate of 91,176 Lori common shares. The proceeds
from these loans were used for the September $500,000 down payment on the Yield
acquisition, with the remainder used for working capital.
In August, 1995 Lori obtained a credit facility for the factoring of the
accounts receivable of its fashion costume jewelry operations. The credit
facility provides for advances of 80% of receivables assigned, less allowances
for markdowns and other merchandise credits. The factoring charge, a minimum of
1.75% of the receivables assigned, increases on a sliding scale if the
receivables assigned are not collected within 45 days. Borrowings under the
credit facility are collateralized by the accounts receivable, inventory and
equipment of Lori's fashion costume jewelry subsidiaries and guaranteed by Lori.
At September 30, 1995 outstanding borrowings under this credit facility of
$770,000 were classified in the Company's condensed consolidated balance sheet
as current liabilities of discontinued operations held for disposal.
At September 30, 1995 the common stock and virtually all the assets of the
Company and its operating subsidiaries have been pledged as collateral for a
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. In August, 1995 the director of Lori agreed to subordinate his
interest in the Lori assets pledged as collateral for the above accounts
receivable factoring credit facility.
At September 30, 1995 and December 31, 1994, other noncurrent liabilities of
$955,000 and $963,000, respectively, consisted of amounts due December 31, 1996
and 1997 representing unsecured claims arising from the May 3, 1993
reorganization of New Dimensions.
7. OBLIGATIONS EXPECTED TO BE SETTLED BY THE ISSUANCE OF COMMON STOCK
Effective July 4, 1995, Lori and ARTRA entered into an employment or consulting
services agreements with certain individuals to manage Lori's entry into and
development of the telecommunications and computer technical staffing services
business. As additional compensation, the agreements provided for the issuance
in aggregate of a 35% common stock interest in Lori. The Lori shares, issued on
October 6, 1995, were valued at $.93 per share based upon Lori's average closing
market price on the American Stock Exchange for the period beginning 5 business
days prior to and ending 5 business days after the acceptance of the employment
or consulting services agreements (July 4, 1995), as discounted for dilution,
blockage and restricted marketability. Accordingly, Lori has accrued the
compensation charge of $3,000,000 related to the issuance of the 35% common
stock interest in Lori (approximately 3,200,000 Lori common shares), which is
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
classified in the Company's condensed consolidated balance sheet at September
30, 1995 as obligations expected to be settled by the issuance of common stock.
After the issuance of these common shares, plus the effects of the issuance of
common shares sold by private placements and other common shares issued in
conjunction with the Yield acquisition, ARTRA's common stock ownership interest
in Lori will be reduced to approximately 25%.
8. 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 September 30, 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.
ARTRA has agreed to exchange its Lori Series C cumulative preferred stock for
100,000 newly issued Lori common shares. The exchange is expected to be
consummated during the fourth quarter of 1995.
9. 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.
10. INCOME TAXES
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 1995 and 1994 pre-tax losses. The 1995 extraordinary credit represents
a net gain from discharge of bank indebtedness.
At June 30, 1995, the Company and its subsidiaries had Federal income tax loss
carryforwards of approximately $53,000,000 available to be applied against
future taxable income, if any, expiring principally in 1995 - 2009. Section 382
of the Internal Revenue Code of 1986 limits a corporation's utilization of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. The Company has recently issued a significant
number of shares of its common stock in conjunction with the Yield acquisition
and certain related transactions. Accordingly, the Company is currently subject
to significant limitations regarding the utilization of its Federal income tax
loss carryforwards.
11. LITIGATION
Lori has been notified by the Federal Environment Protection Agency that it is a
potentially responsible party for the disposal of hazardous substances by its
predecessor company at a site on Ninth Avenue in Gary, Indiana.. Lori has no
records indicating that it deposited hazardous substances at this site and
intends to vigorously defend itself in this matter.
<PAGE>
THE LORI CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Lori and its subsidiaries are parties in various other 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.
In conjunction with the Yield acquisition (see Note 2), ARTRA has agreed to
assume certain pre-existing Lori liabilities and indemnify Lori in the event any
future liabilities arise concerning pre-existing environmental matters and
business related litigation.
<PAGE>
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:
Change in Business
On September 11, 1995, Lori signed a stock purchase agreement to participate in
the acquisition of one hundred percent of the captal stock of Spectrum Global
Services, Inc. d/b/a YIELD Global ("YIELD"), a wholly owned subsidiary of
Spectrum Information Technologies, Inc. for consideration consisting of cash of
approximately $6 million, net of cash acquired and 450,000 Lori common shares
issued as consideration for various fees and guarantees associated with the
transaction. The cash consideration included net cash payments to the selling
shareholders of approximately $5.1 million. The 450,000 Lori common shares
issued as consideration for the Yield transaction included 150,000 shares issued
to Peter R. Harvey, a director of the Company and the president of ARTRA and
100,000 shares issued to ARTRA for their guarantee to the selling shareholder of
the payment of the Yield purchase price at closing. The shares issued to Peter
R. Harvey and ARTRA are subject to approval by Lori's shareholders.
Additionally, in conjunction with the Yield acquisition, ARTRA has agreed to
assume certain pre-existing Lori liabilities and indemnify Lori in the event any
future liabilities arise concerning pre-existing environmental matters and
business related litigation. YIELD provides telecommunications and computer
technical staffing services worldwide to Fortune 500 companies and maintains an
extensive, global database of technical specialists, with an emphasis on
wireless communications capability. The acquisition of Yield was funded
principally by private placements of approximately 1,900,000 Lori common shares
at $3.00 per share (total proceeds of approximately $5,700,000) plus detachable
warrants to purchase approximately 950,000 Lori common shares at $3.375 per
share. The warrants expire three years from the date of issue.
In September 1995, the Company adopted a plan to discontinue the Company's
fashion costume jewelry business and recorded a provision of $1,000,000 for the
estimated costs to complete the disposal of the fashion costume jewelry
business.
Liquidity and Capital Resources
Cash and Cash Equivalents and Working Capital
Cash and cash equivalents decreased $781,000 during the nine months ended
September 30, 1995. Cash flows used by operating activities of $2,533,000 and
cash flows used by investing activities of $854,000 exceeded cash flows from
financing activities of $2,606,000. Cash flows used by operating activities were
principally attributable to the Company's loss from operations, exclusive of the
effect of a charge to operations of $12,930,000 representing an impairment of
goodwill at the Company's discontinued fashion costume jewelry operations and a
compensation charge to continuing operations of $3,000,000 representing the
issuance in aggregate of a 35% common stock interest in Lori as additional
consideration under employment or consulting services agreements with certain
individuals to manage Lori's entry into and development of the
telecommunications and computer technical staffing services business. Cash flows
from investing activities consisted of a down payment and certain other
acquisition related costs aggregating $753,000 in connection with the Yield
acquisition completed in October, 1995, expenditures for retail fixtures of
$631,000 and expenditures for equipment of $20,000, less $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 the former New
Dimensions subsidiary. Cash flows from financing activities were attributable to
short-term loans used to fund the $750,000 payment due the Company's former bank
lender under terms of the debt settlement agreement, the Yield acquisition down
payment and working capital requirements.
During the nine months ended September 30, 1995, the Company's working capital
deficiency increased by $5,868,000. The increase in working capital deficiency
is principally attributable to an accrued compensation charge of $3,000,000
representing the issuance in aggregate of a 35% common stock interest in Lori as
additional consideration under employment or consulting services agreements with
certain individuals to manage Lori's entry into and development of the
telecommunications and computer technical staffing services business and
operating losses associated with the Company's discontinued fashion
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
costume jewelry operations, exclusive of a charge to operations of $12,930,000
representing an impairment goodwill at the Company's discontinued fashion
costume jewelry operations.
Debt Restructuring
In recent years, the Company`s fashion costume jewelry operations experienced a
pattern of significantly lower sales levels and related operating losses
primarily due to a shift in the buying patterns of its major customers (i.e.
certain mass merchandisers) from participation in the Company's service program
to purchases of costume jewelry and accessories directly from manufacturers. As
a result of the significant operating loss incurred in 1992, on February 5,
1993, the Company's former New Dimensions subsidiary 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 fashion costume jewelry
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 fashion
costume jewelry 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 advanced to Lori and used to fund amounts due the bank as
discussed below. The loan, due June 30, 1995, with interest payable monthly at
10%, was 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, were carried in the Company's condensed consolidated
balance sheet at September 30, 1995 and December 31, 1994 as restricted common
stock. In August, 1995 the loan was extended until September 15, 1995 and the
lender received the above mentioned 100,000 Lori common shares as consideration
for the loan extension. The loan has not been paid as of November 15, 1995 and
ARTRA has entered into discussions to extend the due date of the loan.
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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
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 ($2.04 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 had experienced a pattern of significantly lower
sales levels and related 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. Due to the pattern of operating
losses, New Dimensions cessation of operations did not have a material adverse
effect on the financial condition, liquidity or results of operations of the
Company.
1995 Plan of Operations
At March 31, 1995 and at December 31, 1994, the Company had anticipated that the
restructuring of its debt (see Note 4 to the Company's condensed consolidated
financial statements), along with a consolidation and restructuring of its
operations in order to reduce overhead costs and improve operational
efficiencies, would permit it to obtain a sufficient level of borrowings to fund
its capital requirements of its fashion costume jewelry operations in 1995.
During the second quarter of 1995, due primarily to competitive conditions in
the costume jewelry industry, the Company experienced a reduction in business
with certain major customers. Additionally, the Company discontinued certain
unprofitable programs with other customers resulting in charges to operations
for merchandise credits and inventory valuation allowances totaling $450,000.
Due to the continued losses from operations and the inability of the Company to
obtain conventional bank financing, the Company determined that its remaining
goodwill balance could no longer be recovered over its remaining life through
forecasted future operations. Accordingly, the Company recorded a charge against
operations of $12,930,000 ($3.89 per share) to write-off all of the goodwill of
its costume jewelry operations (see Note 3 to the Company's condensed
consolidated financial statements).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
At March 31, 1995, subsequent to the discharge of the Company's former bank
indebtedness, the Company did not have a credit facility in place to fund its
1995 capital requirements. The Company entered into negotiations with various
financial institutions and other lenders to obtain a working capital financing.
These negotiations did not result in the placement of a credit facility. During
June, 1995, Lori entered into a series of agreements with certain unaffiliated
investors that provided for $700,000 of short-term loans due January 1, 1996. In
August, 1995 Lori obtained a credit facility for the factoring of the accounts
receivable of its fashion costume jewelry operations. The credit facility
provides for advances of 80% of receivables assigned, after allowances for
markdowns and other merchandise credits. The factoring charge, a minimum of
1.75% of the receivables assigned, increases on a sliding scale if the
receivables assigned are not collected within 45 days. Borrowings under the
credit facility, $770,000 at September 30, 1995 are collateralized by the
accounts receivable, inventory and equipment of Lori's fashion costume jewelry
subsidiaries and guaranteed by Lori.
However, due continued operating losses and the inability to obtain adequate
credit facilities to fund its fashion costume jewelry operations, in September
1995, the Company adopted a plan to discontinue the Company's fashion costume
jewelry business and recorded a provision of $1,000,000 for the estimated costs
to complete the disposal of the fashion costume jewelry business.
It is anticipated that Lori's entry into the telecommunications and computer
technical staffing services business through the acquisition of Yield will
provide Lori with sufficient liquidity and capital resources to fund its
operations for the remainder of 1995 and beyond. The acquisition of Yield was
funded principally by private placements of approximately 1,900,000 Lori common
shares at $3.00 per share (total proceeds of approximately $5,700,000) plus
detachable warrants to purchase approximately 950,000 Lori common shares at
$3.375 per share. The warrants expire three years from the date of issue. Lori
continues to search for additional funding, either through borrowings or equity
infusions to expand its entry into the telecommunications and computer technical
staffing services business.
At September 30, 1995 the common stock and virtually all the assets of the
Company and its operating subsidiaries have been pledged as collateral for a
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. In August, 1995 the director of Lori agreed to subordinate his
interest the Lori assets pledged as collateral for the above accounts receivable
factoring credit facility.
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. The payment of accrued preferred stock dividends and the
redemption of the preferred stock is contingent upon the ability of the Company
and its operating subsidiaries to generate adequate cash flow, of which there
can be no assurance, to redeem these obligations. Additionally, Lori has not
paid dividends on its common stock in recent years and no dividend payments are
anticipated in the immediate future. ARTRA has agreed to exchange its Lori
Series C cumulative preferred stock for 100,000 newly issued Lori common shares.
The exchange is expected to be consummated during the fourth quarter of 1995.
During the nine months ended September 30, 1995, ARTRA made advances of $365,000
to Lori. In conjunction with the Amended Settlement Agreement (see Note 4 to the
Company's condensed consolidated financial statements), ARTRA entered into a
$1,850,000 short-term loan agreement with a non-affiliated corporation, the
proceeds of which were advanced to Lori and used to fund amounts due Lori's
bank. The loan, due June 30, 1995, was 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, were carried in the
Company's condensed consolidated balance sheet at June 30, 1995 and December 31,
1994 as restricted common stock. In August, 1995 the loan was extended until
September 15, 1995 and the lender received the above mentioned 100,000 Lori
common shares as consideration for the loan extension. Accordingly, the carrying
value of these 100,000 Lori common shares was transferred to ARTRA as reduction
of amounts due ARTRA.
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 former bank lender, and
certain non-interest bearing advances used to fund Lori working capital
requirements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
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.
Lori has no material commitments for capital expenditures.
Litigation
Lori has been notified by the Federal Environment Protection Agency that it is a
potentially responsible party for the disposal of hazardous substances by its
predecessor company at a site on Ninth Avenue in Gary, Indiana.. Lori has no
records indicating that it deposited hazardous substances at this site and
intends to vigorously defend itself in this matter.
Lori and its subsidiaries are parties in various other 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.
In conjunction with the Yield acquisition (see Note 2 to the Company's condensed
consolidated financial statements), ARTRA has agreed to assume certain
pre-existing Lori liabilities and indemnify Lori in the event any future
liabilities arise concerning pre-existing environmental matters and business
related litigation.
Net Operating Loss Carryforwards
At June 30, 1995, the Company and its subsidiaries had Federal income tax loss
carryforwards of approximately $53,000,000 available to be applied against
future taxable income, if any, expiring principally in 1995 - 2009. Section 382
of the Internal Revenue Code of 1986 limits a corporation's utilization of its
Federal income tax loss carryforwards when certain changes in the ownership of a
corporation's common stock occurs. The Company has recently issued a significant
number of shares of its common stock in conjunction with the Yield acquisition
and certain related transactions. Accordingly, the Company is currently subject
to significant limitations regarding the utilization of its Federal income tax
loss carryforwards.
Results of Operations
Due to a pattern of reduced sales volume resulting in continuing operating
losses, in September 1995, the Company adopted a plan to discontinue the
Company's fashion costume jewelry business. The Company's condensed consolidated
financial statements have been reclassified to report separately results of
operations of the discontinued fashion costume jewelry business. Therefore, a
comparison of the Company's consolidated results of operations for 1995 with the
corresponding periods of 1994 is not meaningful. The following tables present a
comparison of results of operations of the discontinued fashion costume jewelry
for the three and nine months ended September 30, 1995 with the corresponding
periods of 1994.
As discussed in Note 4 to the condensed consolidated financial statements, the
assignment to a bank lender of all of the assets of Lori's former 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 and nine months ended September 30, 1994
included New Dimensions net sales of $2,733,000 and $10,629,000 and operating
losses of $669,000 and $1,557,000, respectively. In recent years, New Dimensions
had experienced a pattern of significantly lower sales levels and related
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. Due to the pattern of operating losses, New
Dimensions cessation of operations did not have a material adverse effect on the
results of operations of the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
Discontinued Operations Three Months Ended September 30, 1995 vs. Discontinued
Operations Three Months Ended September 30, 1994
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
(In thousands)
1995 1994
------- -------
<S> <C> <C>
Net sales $ 2,949 $ 8,078
------- -------
Operating expenses 3,770 8,823
Goodwill impairment
Interest and other expense (2) 267
------- -------
3,768 9,090
------- -------
Loss from operations before (819) (1,012)
income taxes
Provision for income taxes (2) (4)
------- -------
Loss from operations $ (821) $(1,016)
======= =======
Provision for disposal of business $(1,000) $
Provision for income taxes
------- -------
$(1,000) $
======= =======
Loss from discontinued operations $(1,821) $(1,016)
======= =======
</TABLE>
Net sales of $2,949,000 for the three months ended September 30, 1995 were
$5,129,000, or 63.5%, lower than net sales for the three months ended September
30, 1994. The 1995 sales decrease is principally attributable to the termination
of New Dimensions operations effective December 27, 1994 and to a soft retail
environment in 1995. During the second quarter of 1995, due primarily to
competitive conditions in the costume jewelry industry, the Company experienced
a reduction in business with certain major customers. Additionally, the Company
discontinued certain unprofitable programs with other customers.
Loss from discontinued operations in the three months ended September 30, 1995
was $821,000 as compared to a loss from discontinued operations of $1,016,000 in
the three months ended September 30, 1994. The decreased 1995 loss from
discontinued operations is principally attributable to certain unprofitable
fashion costume jewelry programs the Company terminated during the second
quarter of 1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (continued)
Discontinued Operations Nine Months Ended September 30, 1995 vs. Discontinued
Operations Nine Months Ended September 30, 1994
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------
(In thousands)
1995 1994
------- -------
<S> <C> <C>
Net sales $10,588 $26,390
------- -------
Operating expenses 13,262 28,406
Goodwill impairment 12,930
Interest and other expense 2 706
------- -------
26,194 29,112
------- -------
Loss from operations before (15,606) (2,722)
income taxes
Provision for income taxes (5) (10)
------- -------
Loss from operations ($15,611) $(2,732)
======= =======
Provision for disposal of business $(1,000) $
Provision for income taxes
------- -------
$(1,000) $
======= =======
Loss from discontinued operations ($16,611) $(2,732)
======= =======
</TABLE>
Net sales of $10,588,000 for the nine months ended September 30, 1995 were
$15,802,000, or 59.5%, lower than net sales for the nine months ended September
30, 1994. The 1995 sales decrease is principally attributable to the termination
of New Dimensions operations effective December 27, 1994 and a soft retail
environment in 1995. During the second quarter of 1995, due primarily to
competitive conditions in the costume jewelry industry, the Company experienced
a reduction in business with certain major customers. Additionally, the Company
discontinued certain unprofitable programs with other customers.
Loss from discontinued operations in the three months ended September 30, 1995
was $15,611,000 as compared to a loss from discontinued operations of $2,732,000
in the three months ended September 30, 1994. The increased 1995 loss from
discontinued operations is principally attributable to a charge against
operations of $12,930,000 ($3.89 per share) to write-off all of the goodwill of
the Company's costume jewelry operations at June 30, 1995, as discussed in Note
3 to the Company's condensed consolidated financial statements. Additionally, at
September 30, 1995, the Company recorded a provision of $1,000,000 for the
estimated costs of disposing of the fashion costume jewelry operations.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT 11
Computation of earnings per share and equivalent share of
common stock for the nine months ended September 30, 1995
and 1994.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months
ended September 30, 1995.
<PAGE>
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: November 20,1995 JAMES D. DOERING
-----------------------------------------
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT 11
THE LORI CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
AND EQUIVALENT SHARE OF COMMON STOCK
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
Line 1995 1994
-------- -------
<S> <C> <C> <C>
AVERAGE SHARES OUTSTANDING
1 Weighted average number of shares of common stock
outstanding during the period 3,321 3,183
2 Net additional shares assuming stock options and warrants
exercised and proceeds used to purchase treasury shares - -
-------- -------
3 Weighted average number of shares and equivalent shares
of common stock outstanding during the period 3,321 3,183
======== =======
EARNINGS (LOSS)
4 Loss from continuing operations ($3,675) ($1,651)
-------- -------
5 Amount for per share computation ($3,675) ($1,651)
======== =======
6 Loss before extraordinary credit ($20,286) ($4,383)
-------- -------
7 Amount for per share computation ($20,286) ($4,383)
======== =======
8 Net loss ($13,629) ($4,383)
-------- -------
9 Amount for per share computation ($13,629) ($4,383)
======== =======
PER SHARE AMOUNTS
Loss before extraordinary credit
(line 5 / line 3) ($1.14) ($0.52)
====== ======
Loss before extraordinary credit
(line 7 / line 3) ($6.14) ($1.38)
====== ======
Net loss
(line 9 / line 3) ($4.10) ($1.38)
====== ======
</TABLE>
Earnings (loss) per share is computed by dividing net earnings (loss), less
preferred stock dividends, by the weighted average number of shares of common
stock and common stock equivalents (stock options and warrants), unless
anti-dilutive, outstanding during the period. Fully diluted earnings (loss) per
share is not presented since the result is equivalent to primary earnings (loss)
per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from the third quarter Form
10-Q and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<CIK> 0000006814
<NAME> The Lori Corporation
<MULTIPLIER> 1,000
<CURRENCY> dollars
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Sep-30-1995
<EXCHANGE-RATE> 1.000
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,525
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,278
<CURRENT-LIABILITIES> 11,239
<BONDS> 0
<COMMON> 36
0
19,515
<OTHER-SE> (26,467)
<TOTAL-LIABILITY-AND-EQUITY> (6,916)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,265
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 410
<INCOME-PRETAX> (3,675)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,675)
<DISCONTINUED> 0
<EXTRAORDINARY> 6,657
<CHANGES> (16,611)
<NET-INCOME> (13,629)
<EPS-PRIMARY> (4.10)
<EPS-DILUTED> 0
</TABLE>
