<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the Quarterly Period Ended December 31, 1997
Commission file number 0-14427
--------------------------
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)
5029 EDGEWATER DRIVE, ORLANDO, FLORIDA 32810 (407) 521-7477
(Address, including zip code, and telephone number, including area code, of
registrant's office)
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 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 February 13, 1998, 3,597,369 shares of Common Stock were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
LA-MAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
December 31,
1997
------------
ASSETS
<S> <C>
Current Assets:
Accounts receivable:
Trade, less allowance for doubtful accounts of $225,644 $2,542,615
Other 129,245
Inventories 1,104,546
Costs and estimated earnings in excess
of billings on uncompleted contracts 160,680
Prepaid expenses 443,481
Deferred taxes 297,000
-----------
Total current assets 4,677,567
-----------
Property, plant and equipment, net 3,116,515
-----------
Other assets:
Intangible, less accumulated amortization 2,931,148
Deferred taxes 2,500
Other 316,440
-----------
Total other assets 3,250,088
-----------
$11,044,170
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 586,771
Customer deposits 568,843
Accrued expenses 759,415
Deferred income 19,257
Current portion of long-term debt 360,000
Current portion of obligations under capital leases 28,808
-----------
Total current liabilities 2,323,094
Long-term liabilities:
Borrowings against line of credit 461,000
Long-term debt, less current portion 2,890,000
Obligations under capital leases, less current portion 6,166
-----------
Total liabilities 5,860,260
-----------
Stockholders' equity:
Common stock 3,597
Additional paid-in capital 6,565,339
Accumulated deficit (1,205,026)
-----------
Total stockholders' equity 5,363,910
-----------
$11,044,170
===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
LA-MAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $9,771,147 $7,823,279 $4,689,800 $3,609,442
Costs of sales 5,327,422 4,180,160 2,638,843 1,902,973
---------- ---------- --------- ----------
Gross profit 4,443,725 3,643,119 2,050,957 1,706,469
Operating expenses 3,937,168 3,265,540 1,950,062 1,627,127
---------- ---------- --------- ----------
Income from operations 506,557 377,579 100,895 79,342
---------- ---------- --------- ----------
Other income (expense):
Interest income 48,873 49,497 22,694 25,618
Interest expense (118,955) (102,385) (47,467) (52,675)
Gain (loss) on sales of
assets, net 3,150 264,562 3,150 265,705
Other 20,013 659 20,013 287
---------- ---------- --------- ---------
(46,919) 212,333 (1,610) 238,935
---------- ---------- --------- ----------
Income from continuing operations
before provision for income taxes 459,638 589,912 99,285 318,277
Provision (benefit) for income taxes 98,000 (128,725) 28,000 (128,725)
---------- ---------- --------- ----------
Income from continuing operations 361,638 718,637 71,285 447,002
Discontinued operations:
Loss from operations of discontinued
operations - (279,928) - (123,938)
Provision for losses on discontinued
operations - (373,015) - (373,015)
---------- ---------- --------- ----------
Net income (loss) $ 361,638 $ 65,694 $ 71,285 $ (49,951)
========== ========== ========== ==========
Basic Earnings Per Common Share:
Continuing operations $ .10 $ .21 $ .02 $ .13
Discontinued operations - (.19) - (.14)
---------- ---------- --------- ----------
Net income (loss) per share $ .10 $ .02 $ .02 $ (.01)
========== ========== ========== ==========
Diluted Earnings Per Common Share:
Continuing operations $ .08 $ .18 $ .02 $ .11
Discontinued operations - (.16) - (.11)
---------- ---------- --------- ----------
Net income (loss) per share $ .08 $ .02 $ .02 $ -
========== ========== ========== ==========
Weighted average number of shares
outstanding:
Basic 3,572,578 3,414,347 3,592,122 3,449,064
========== ========== ========== ==========
Diluted 4,801,469 4,243,916 4,854,020 4,285,474
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
LA-MAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 361,638 $ 65,694
Adjustments to reconcile net income to net cash
used for operating activities:
Loss from discontinued operations - 652,943
Depreciation and amortization 245,003 225,613
Gain on disposal of property and equipment (3,150) (264,562)
Contribution of common stock to 401(k) plan 51,192 40,995
Realization of deferred income (19,989) (32,435)
Change in deferred income taxes 75,500 (150,000)
Tax benefit on exercise of stock options 15,000 -
Changes in assets and liabilities:
Accounts receivable, trade (324,370) (208,842)
Other receivables 57,685 87,493
Inventories (104,587) (371,661)
Prepaid expenses (50,153) 48,276
Accounts payable (232,188) (148,952)
Customer deposits (60,700) (4,226)
Accrued expenses (450,230) (199,240)
--------- ---------
Net cash used for continuing operating activities (439,349) (258,904)
--------- ---------
Net cash used for discontinued operating activities (19,139) (227,350)
--------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment (530,999) (187,337)
Net cash received from acquisition of Certified Maintenance Services, Inc. 28,587 -
Proceeds from sales of assets 3,150 343,643
Other - (20,477)
--------- ---------
Net cash provided by (used for) investing activities (499,262) 135,829
--------- ---------
Cash flows from financing activities:
Net change in line of credit borrowings 461,000 300,100
Proceeds from issuance of notes payable, net of debt issue costs 302,705 -
Principal payments on notes payable (85,956) (53,305)
Proceeds from exercise of stock options and warrants, net of issuance costs 62,677 18,750
Payments on capital lease obligations (13,989) (4,949)
--------- ---------
Net cash provided by financing activities 726,437 260,596
--------- ---------
Decrease in cash (231,313) (89,829)
Cash, beginning of period 231,313 112,727
--------- ---------
Cash, end of period $ - $ 22,898
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
LA-MAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein is unaudited and does not
include all of the information and disclosures required by generally accepted
accounting principles; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the Company's financial
position and results of operations for the interim periods. Certain
reclassifications have been made in the 1996 financial statements to conform to
the 1997 presentation. This report should be read in conjunction with the
Consolidated Financial Statements included in the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1997.
The results of operations for the six months and three months ended
December 31, 1997 are not necessarily indicative of the results to be expected
for the full year.
NOTE 2 - ACQUISITIONS
On July 1, 1997, the Company acquired all of the outstanding common stock
of Certified Maintenance Services, Inc. ("Certified") for the assumption of
Certified's net liabilities of approximately $600,000. The acquisition was
recorded using the purchase method of accounting. Accordingly, the purchase
price was allocated to the net assets acquired based upon their estimated fair
market values. The excess of the purchase price over the estimated fair value
of net assets acquired amounted to approximately $600,000, which has been
accounted for as goodwill and is being amortized over its estimated life of 40
years. The operating results of Certified are included in the Company's
consolidated results of operations from the date of acquisition.
NOTE 3 - INVENTORIES
Inventories at the end of interim periods are based on perpetual
inventory records. Inventories consist of the following at December 31, 1997:
Raw materials and work in progress $ 935,294
Finished goods 169,252
----------
$1,104,546
==========
5
<PAGE>
NOTE 3 - UNCOMPLETED CONTRACTS
The costs and estimated earnings in excess of billings on uncompleted
contracts consists of the following at December 31, 1997:
Costs incurred on uncompleted contracts $406,555
Estimated earnings 144,425
--------
550,980
Billings to date (390,300)
--------
$160,680
========
NOTE 5 - REVOLVING LINE OF CREDIT
The Company has a $1,300,000 revolving bank line of credit. Advances on
the credit line carry an interest rate of 1% over prime. The line of credit,
which is renewable, initially matures August 1, 1999 and is collateralized by
property, accounts receivable and inventory, and subsidiary guarantees. The
loan agreement contains covenants which require the Company to maintain certain
financial and operating ratios. At December 31, 1997, $461,000 was outstanding
against this line of credit.
NOTE 6 - LONG TERM DEBT
On August 28, 1997, the Company obtained a letter of credit from a
national bank and issued notes payable secured by that letter of credit in the
amount of $2.5 million. The notes bear interest at a variable rate (which,
including the effect of amortization of finance costs, was an effective rate of
approximately 7.0% at December 31, 1997). Approximately $2.1 million of the
proceeds were used to pay off all previously outstanding Company debt, including
debt assumed in the Certified acquisition, except for the Company's 8%, $750,000
convertible note payable. Interest payments are due on the notes on a monthly
basis with annual principal payments due each August through the 2012 maturity
date.
NOTE 7 - LEGAL PROCEEDINGS AND DISCONTINUED OPERATIONS
In November 1996, the contracts between MCI Telecommunications, Inc.
("MCI") and Vision Trust Marketing, Inc. ("VTM") for marketing MCI long-distance
services were abruptly terminated by MCI. The contract for commercial customers
was originally executed in 1994 and was restated and extended for a new five-
year term in May 1996. This contract revision had been proposed by MCI in
September 1995 and discussed with VTM over a period of eight months. In
reliance on the new contract, VTM invested heavily in staff, facilities and
equipment in anticipation of significant commissions as a result of enhancements
in the revised contract. A lawsuit was filed by VTM on April 16, 1997, seeking
the recovery of damages from MCI. A series of motions have been filed, but no
significant court decisions have been made to date.
Because VTM is no longer contracted to market MCI long distance services,
its sole line of business, the Company discontinued the operations of VTM in
December 1996. Sales for VTM for the six months ended December 31, 1996
amounted to $249,000. Losses totaling $284,000 for the write-down of VTM's
assets to net realizable value were recognized in December 1996.
6
<PAGE>
NOTE 8 - CAPITAL STOCK
Activity in the Company's equity accounts for the six months ended
December 31, 1997 consists of the following:
A total of 19,772 shares of common stock valued at $51,192 were
contributed to the Company's 401(k) plan
Outstanding stock options were exercised for the issuance of a total of
85,796 shares of the Company's common stock. These exercises contributed
a total of $77,677 to the Company's equity, net of issuance costs and tax
benefits to the Company.
Executive bonuses totaling $33,400 were paid via the issuance of 13,047
shares of the Company's common stock
An option to acquire 52,500 shares of the Company's common stock for
$2.62 per share was issued for consulting services. The $16,000 fair
value of this option was recorded as additional paid-in capital.
A total of 167,885 shares of common stock were issued on December 1, 1997
to pay a five percent stock dividend. The $577,524 value of the shares
issued was reclassified from retained earnings to common stock and
additional paid in capital. Net income per share for periods prior to
the stock dividend have been retroactively restated to reflect the
effects of the stock dividend.
NOTE 9 - CHANGE IN ACCOUNTING METHOD
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(FAS 128) effective for financial statements issued for periods ending after
December 15, 1997. Accordingly, the Company adopted the provisions of FAS 128
for the period ending December 31, 1997. FAS 128 simplifies the standards for
computing earnings per share and makes them comparable to international earnings
per share standards. Earnings per share for prior periods have been restated
under the provisions of the new standard.
7
<PAGE>
NOTE 10 - SUPPLEMENTAL CASH FLOW INFORMATION
The following summarizes noncash investing and financing transactions
during the six months ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- --------
<S> <C> <C>
Debt refinancing $2,005,318 $ -
Debt issue costs paid from notes payable 167,605 -
Assumption of liabilities for net assets of
Certified Maintenance Services, Inc. 596,656 -
Common stock issued for payment of incentive bonuses 33,400 -
Fair value of stock options issued for investment consulting services 16,000 -
Issuance of common stock for 401(k) matching contribution 51,192 40,995
Issuance of common stock for 5% stock dividend 577,524 152,768
</TABLE>
NOTE 11 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (FAS
130) and No. 131, "Disclosure about Segments of an Enterprise and Related
Information" (FAS 131). FAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. FAS
131 establishes standards for the way public companies report information about
operating segments in annual financial statements and requires reporting of
selected information about operating segments in interim financial statements
issued to the public. Both FAS 130 and FAS 131 are effective for periods
beginning after December 15, 1997. Neither FAS 130 nor FAS 131 are expected to
have a material impact on the Company's financial statements.
(THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
8
<PAGE>
LA-MAN CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION 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,
1997, filed with the Securities and Exchange Commission on September 25, 1997,
which discussion is incorporated herein by reference.
Except for the historical information contained herein, the matters
addressed in this Quarterly Report on Form 10-QSB may constitute "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended. Such forward-looking statements are subject to a variety of risks and
uncertainties that could cause actual results to be different materially from
those anticipated by the Company's management. The Private Securities
Litigation Reform Act of 1995 (the "1995 Act") provides certain "safe harbor"
provisions for forward-looking statements. All forward-looking statements made
in this Quarterly Report on form 10-QSB are made pursuant to the 1995 Act. For
more information on the potential factors which could affect the Company's
financial results, reference should be made to the Company's filings with the
Securities and Exchange Commission, including the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997.
The results of operations for the six months and three months ended
December 31, 1997 are not necessarily indicative of the results to be expected
for the full year. The Company is continuously exploring acquisition candidates
and plans to continue to grow through acquisitions as well as internally.
Management is currently in various stages of acquisition discussions with
several companies. If any of these acquisitions are ultimately consummated
during the current fiscal year, operating results in future quarters could be
significantly different from the operating results for the six months and three
months ended December 31, 1997. However, all of these discussions to date have
been on the basis of no dilution to the present shareholders.
Certain non-recurring events make comparison of fiscal 1997 results to
fiscal 1998 results arduous. Specifically, the Company recognized a gain of
$265,000 on the sale of three billboards during the second quarter of fiscal
1997. This sale removed the Company from the billboard business and no similar
gains are expected in the current fiscal year. Furthermore, in fiscal 1997, the
Company was able to recognize the tax benefit of certain net operating loss
carryovers which resulted in an effective tax rate for the year of negative 19%.
In fiscal 1998, while the benefits of some net operating losses are still
available, the benefits are significantly reduced from fiscal 1997. As a
result, the effective tax rate for fiscal 1998 is expected to be between 18% and
25% compared to the negative 19% rate in the prior year. The actual effective
tax rate is dependant upon several factors, but will increase as earnings
increase.
SIX MONTHS ENDED DECEMBER 31, 1997 VS. DECEMBER 31, 1996
- --------------------------------------------------------
The Company's sales for the six months ended December 31, 1997 increased
by $1,947,868, or 25% over the same period in the prior year. Operating income
increased by $128,978, or 34% while income from continuing operations, before
the provision for income taxes, decreased by $130,274, or 22% due to a
9
<PAGE>
non-recurring $265,000 gain on the sale of certain equipment in the prior year.
Certain net operating losses used during the prior fiscal year, but not
available in the current fiscal year, resulted in the provision for income taxes
increasing to a $98,000 expense for the six month period ended December 31, 1997
compared to a tax credit of $128,725 for the same period in the prior year. As
a result of the non-recurring gain on the sale of equipment and the income tax
credit not being available in the current year, income from continuing
operations decreased by $356,999, or 50%. A loss from discontinued operations
of $652,943 in the prior year reduced net income for the six month period ended
December 31, 1996. All costs associated with this discontinued segment were
recognized prior to December 31, 1996 and net income for the six months ended
December 31, 1997 increased by $295,944, or 450% over the same period in the
prior year. Basic earnings per common share increased by $.08 while basic
earnings per common share from continuing operations decreased by $.11. Over
the same periods, diluted earnings per common share increased by $.06 and
diluted earnings per common share from continuing operations decreased by $.10.
Each of the Company's operating divisions contributed to the increase in
sales over the prior year. The institutional sign division's sales totaled
$4,285,132 for the six months ended December 31, 1997--an increase of $657,139,
or 18% over the same period in the prior year. The custom signage division,
which includes both the manufacturing and maintenance of custom signs, reported
a $1,168,635, or 35% increase in sales from $3,390,365 for the six months ended
December 31, 1996 to $4,559,000 for the six months ended December 31, 1997.
Approximately $560,000 of the increased sales at the custom signage division
derived from service and maintenance which was aided by the July 1997
acquisition of Certified Maintenance Services, Inc. The filtration division's
sales totaled $927,015 for the six months ended December 31, 1997 compared to
$804,921 for the six months ended December 31, 1996--an increase of $122,094,
or 15%.
New products and new marketing techniques, as well as the July 1997
acquisition of Certified Maintenance Services, Inc., drove the 25% sales growth.
In mid 1997, the institutional sign division began marketing its products
to government installations, primarily military bases, and has entered into
various contracts which improve the division's ability to make sales to the
government. These multi-year contracts, amongst various other functions, reduce
the governmental "red-tape" and permit governmental installations to purchase
signs without obtaining other competitive bids which would normally be required.
For the six months ended December 31, 1997, sales to government installations
totaled $192,000 In addition, the division increased its product line to include
LED and wedge-based message center signs. These product lines contributed
$339,000 to sales for the six months ended December 31, 1997.
In June 1997 the custom sign division created a marketing department
dedicated to creating sales leads through product awareness and promotion. The
marketing department now coordinates direct mail marketing, trade show
attendance, and other sales lead development procedures that were previously
managed by the sales staff. In addition, the division has added wedge-based
color message centers and video boards to its product line via an exclusive
distribution agreement with Electronic Sign Corporation (d/b/a Ad Art). The
distribution agreement gives the custom sign division exclusive rights to market
Ad Art's wedge-based product in seven southeastern states and on a nonexclusive
basis worldwide. This agreement has not only accelerated the Company's entry
into the wedge-based market, but has done so with the most spectacular products
on the market and at a cost of entry substantially less than developing its own
wedge-based product. The first product manufactured under this agreement was
delivered in December 1997. Additional orders have been received with delivery
dates scheduled throughout the remainder of the fiscal year. The sales leads
being created by the new marketing department and the addition of the new wedge-
based product line have combined
10
<PAGE>
with the additional service and maintenance sales derived from the Certified
Maintenance Services, Inc. acquisition to increase sales at the division by 35%.
In April 1997, the filtration division dramatically changed its marketing
methods. Additional field representatives were added, trade show attendance was
expanded, advertising was increased, communication with distributors was
enhanced, and a proactive program to add distributors was enacted. These new
marketing methods resulted in the 15% growth in sales at the division.
The gross profit margin for the six months ended December 31, 1997 was
45.5% compared to 46.6% for the same period in the prior year. The decrease in
gross margins is attributable to lower margins at the institutional sign
division where margins dropped from 59.3% for the six month ended December 31,
1996 to 57.8% for the six months ended December 31, 1997. The decreased margins
at the division result from vendor price increases that could not be passed
through to customers as well as reduced margins on the new LED and wedge-based
product lines. While these product lines have a higher overall selling price
than the traditional, florescent, back-lit signs sold by the division, they
cannot be sold competitively at the traditional 60% gross profit margins. The
drop in gross margins at the institutional sign division was offset by slight
increases in margins at both the custom sign and filtration divisions.
Operating expenses for the six months ended December 31, 1997 were
$3,937,168 - an increase of $671,628, or 21% over the same period in the prior
year. Approximately $316,000 of the increase in operating expenses represents
an increase in selling expenses which totaled approximately $1,593,000 for the
six months ended December 31, 1997 and $1,277,000 for the six month ended
December 31, 1996. The increased selling expenses are a function of the
increased sales as selling expenses amounted to 16.3% of sales in both the 1997
and 1996 periods. General and administrative expenses account for the remaining
increase in operating expenses of approximately $355,000. The acquisition of
Certified Maintenance Services, Inc. has contributed significantly to the
increased general and administrative expenses as the increased service and
maintenance sales have required additional office personnel and related overhead
costs. In addition, employee health insurance costs increased significantly as
well as expenditures to promote the common stock of the Company.
Income from operations for the six months ended December 31, 1997 totaled
$506,557 compared to $377,579 for the same period in the prior year - an
increase of $128,978, or 34%. Both the institutional sign and custom sign
divisions had increases in income from operations with the institutional sign
division increasing by $98,395, or 25% and the custom sign division increasing
by $113,466, or 66%. Income from operations at the filtration division
decreased by $7,182, or 3% due to increased costs of the new marketing plan that
is expected to increase sales at a more rapid rate as the plan becomes fully
implemented. In addition, increases in corporate operating expenses increased
the corporate division's loss from operations by $75,701, or 17%.
Despite the 34% increase in income from operations, income from
continuing operations decreased by $356,999, or 50% from $718,637 ($.21 per
share; $.18 per share, diluted) for the six months ended December 31, 1996 to
$361,638 ($.10 per share; $.08 per share, diluted) for the six months ended
December 31, 1997. In the prior year period, the Company realized a non-
recurring gain of $265,000 ($.08 per share; $.06 per share, diluted) on the sale
of three billboards that were owned by the Company. These were the only
billboards owned by the Company and their sale in November 1996 removed the
Company from this non-core business. In addition, the prior year period
included a tax credit of $128,725 ($.04 per share; $.03 per share, diluted)
which was available as a result of net operating loss carryovers. In the current
year, while the benefits of some net operating losses are still available, the
benefits are significantly reduced from the prior
11
<PAGE>
year. As a result, income tax expense totaling $98,000 ($.03 per share; $.02
per share, diluted) was recorded for the six month period ended December 31,
1997 for an effective tax rate of 21%.
Net Income for the six months ended December 31, 1997 totaled $361,638
($.10 per share; $.08 per share, diluted) compared to net income of $65,694
($.02 per share) for the six months ended December 31, 1996 - an increase of
$295,944 ($.08 per share; $.06 per share, diluted), or 450%. In the prior year
period, net income was reduced by losses totaling $652,943 ($.19 per share; $.16
per share, diluted) on discontinued operations. The loss from discontinued
operations resulted from the operating and wind-down costs of the Company's
long-distance telephone marketing subsidiary, Vision Trust Marketing, Inc.,
which was discontinued in November, 1996.
THREE MONTHS ENDED DECEMBER 31, 1997 VS. DECEMBER 31, 1996
- ----------------------------------------------------------
Sales for the quarter ended December 31, 1997 increased by $1,080,358, or
30% over the same period in the prior year. Operating income increased by
$21,553, or 27% while income from continuing operations, before the provision
for income taxes, decreased by $218,992, or 69% due to a non-recurring $265,000
gain on the sale of certain equipment in the prior year. Certain net operating
losses used during the prior year quarter, but not available in the current
quarter, resulted in the provision for income taxes increasing to a $28,000
expense for the quarter ended December 31, 1997 compared to a tax credit of
$128,725 for the same period in the prior year. As a result of the non-
recurring gain on the sale of equipment and the income tax credit not being
available in the current year, income from continuing operations decreased by
$375,717, or 84%. A loss from discontinued operations of $496,953 in the prior
year reduced net income for the quarter ended December 31, 1996. All costs
associated with this discontinued segment were recognized prior to December 31,
1996 and net income for the quarter ended December 31, 1997 increased by
$121,236 over the same period in the prior year. Basic earnings per common
share increased by $.03 while basic earnings per common share from continuing
operations decreased by $.11. Diluted earnings per common share increased by
$.02 and diluted earnings per common share from continuing operations decreased
by $.09.
Each of the Company's operating divisions contributed to the increase in
sales over the prior year. The institutional sign division's sales totaled
$2,028,139 for the quarter ended December 31, 1997 - an increase of $220,283, or
12% over the same period in the prior year. The custom signage division, which
includes both the manufacturing and maintenance of custom signs, reported a
$788,076, or 55% increase in sales from $1,434,924 for the quarter ended
December 31, 1996 to $2,223,000 for the quarter ended December 31, 1997.
Approximately $293,000 of the increased sales at the custom signage division
have derived from service and maintenance which was aided by the July 1997
acquisition of Certified Maintenance Services, Inc. The filtration division's
sales totaled $438,661 for the quarter ended December 31, 1997 compared to
$366,662 for the quarter ended December 31, 1996 - an increase of $71,999, or
20%.
The gross profit margin for the quarter ended December 31, 1997 was 43.7%
compared to 47.3% for the same period in the prior year. The decrease in gross
margins is attributable to lower margins at the institutional and custom sign
divisions where gross margins dropped by 1.2% and 2.6%, respectively, from the
quarter ended December 31, 1996 to the quarter ended December 31, 1997. These
decreases were offset by a 2.9% increase in gross margins at the filtration
division.
Operating expenses for the quarter ended December 31, 1997 were
$1,950,062 - an increase of $322,935, or 20% over the same period in the prior
year. Approximately $123,000 of the increase in operating expenses represents
an increase in selling expenses, which totaled approximately $772,000 for the
quarter
12
<PAGE>
ended December 31, 1997 and $649,000 for the quarter ended December 31,
1996. General and administrative expenses accounted for the remaining increase
in operating expenses of approximately $200,000. The acquisition of Certified
Maintenance Services, Inc. has contributed significantly to the increased
general and administrative expenses. In addition, employee health insurance
costs and stock promotion costs have increased over the prior year period.
Income from operations for the quarter ended December 31, 1997 totaled
$100,895 compared to $79,342 for the same period in the prior year - an increase
of $21,553, or 27%. Both the institutional sign and custom sign divisions had
increases in income from operations with the institutional sign division
increasing by $22,428, or 13% and the custom sign division increasing by
$50,332, or 167%. Income from operations at the filtration division decreased
by $2,984, or 3% and increases in corporate operating expenses increased the
corporate division's loss from operations by $48,223, or 23%.
Despite the 27% increase in income from operations, income from
continuing operations decreased by $375,717, or 84% from $447,002 ($.13 per
share; $.11 per share, diluted) for the quarter ended December 31, 1996 to
$71,285 ($.02 per share) for the quarter ended December 31, 1997. In the prior
year period, the Company realized a non-recurring gain of $265,000 ($.08 per
share; $.06 per share, diluted) on the sale of three billboards that were owned
by the Company. These were the only billboards owned by the Company and their
sale in November 1996 removed the Company from this non-core business. In
addition, the prior year period included a tax credit of $128,725 ($.04 per
share; $.03 per share, diluted) which was available as a result of net operating
loss carryovers. In the current year, while the benefits of some net operating
losses are still available, the benefits are significantly reduced from the
prior year. As a result, income tax expense totaling $28,000 was recorded for
the quarter ended December 31, 1997 for an effective tax rate of 28%.
Net Income for the quarter ended December 31, 1997 totaled $71,285 ($.02
per share) compared to a net loss of $49,951 ($.01 per share; $.00 per share,
diluted) for the quarter ended December 31, 1996 - an increase of $121,236 ($.03
per share; $.02 per share, diluted). In the prior year period, net income was
reduced by losses on discontinued operations totaling $496,953 ($.14 per share;
$.11 per share, diluted). The loss from discontinued operations resulted from
the operating and wind-down costs of the Company's long-distance telephone
marketing subsidiary, Vision Trust Marketing, Inc., which was discontinued in
November, 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash used for continuing operating activities for the six months
ended December 31, 1997 was $439,349. Net income for the period provided cash
of $725,194 net of non-cash charges for depreciation and amortization, gains on
fixed asset sales, stock contributions to the Company's 401(k) plan, the
realization of deferred income, the change in deferred income taxes and the tax
benefit of stock option exercises. This cash provided was offset by a net
change of $1,164,543 in the Company's operating assets and liabilities. A total
of $19,139 in cash was used in the wind down of the discontinued segment.
Net cash used for investing activities for the six months ended December
31, 1997 was $499,262. Capital expenditures during the period totaled $530,999
which includes expenditures of approximately $370,000 to acquire and renovate
two buildings to be used for the production of institutional signs. Currently,
signs sold by the institutional sign division are manufactured by a third party
manufacturer. Renovations on the new buildings continue and in-house production
of institutional signs is expected to begin during fiscal
13
<PAGE>
1998. The cash used for capital expenditures was offset by $3,150 received
from the sale of assets and $28,587 in cash acquired in the Certified
acquisition. Certified was acquired via the assumption of liabilities, so no
cash was used to make the acquisition.
Net cash provided by financing activities for the six months ended
December 31, 1997 was $726,437. On August 28, 1997 the Company obtained a
letter of credit from SouthTrust Bank, N.A. and issued an aggregate of its $2.5
million Variable/Fixed Rate Credit Enhanced Notes (Notes) secured by such letter
of credit. Of this amount, $2,005,318 was used to pay off existing Company debt
and $167,604 was used to pay debt issue costs. The remaining $327,078 was cash
proceeds to the Company. This refinancing of the Company's long-term debt
resulted in a reduction in principal maturities over the next five fiscal years
of approximately $1.4 million and a reduction in the interest rates being paid
by the Company of approximately 2.0%. The Company paid additional debt issue
costs of $24,373 from available cash. Other financing activities included
payments on notes payable and capital lease obligations of $85,956 and $13,989,
respectively and net proceeds from the sale of stock of $62,677 upon the
exercise of certain outstanding stock options. In addition, borrowings against
the Company's line of credit increased by $461,000 during the period.
The Company has a $1.3 million revolving bank line of credit. Advances
on the credit line carry an interest rate of 1% over prime. The line of credit,
which is renewable, initially matures August 1, 1999 and is collateralized by
property, accounts receivable and inventory, and subsidiary guarantees. The
loan agreement contains covenants which require the Company to maintain certain
financial and operating ratios. At February 12, 1998, the Company had advances
totalling $465,000 outstanding against this line of credit. At the close of
each business day, all available cash is used to pay down the outstanding line
of credit balance. Therefore, the Company's balance sheet contains no cash at
December 31, 1997. All immediate cash needs are automatically funded from the
remaining credit available under the line of credit agreement.
14
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS.
- -----------------------------
As discussed in Note 7 to the Condensed Consolidated Financial Statements
included in Part I of the Report, the Company filed a lawsuit on April 16, 1997
in a dispute with MCI Telecommunications, Inc.
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.
- ------------------------------------------------------------
[A] The Company held its 1997 annual meeting of shareholders (the "1997
Annual Meeting") on October 30, 1997.
[B] Proxies for the 1997 Annual Meeting were solicited by the Company's
management pursuant to Regulation 14A under the Exchange Act, there was no
solicitation in opposition to management's nominees for election of directors as
listed in the Company's September 30, 1997 Proxy Statement delivered in
connection with the 1997 Annual Meeting, and all of such nominees were elected.
[C] At the Annual Meeting, 10 persons were elected to serve as directors
of the Company until the next annual meeting of shareholders and until their
successors are elected and qualified, and the Company's shareholders ratified
the appointment of BDO Seidman, LLP, as independent auditors of the Company for
the June 30, 1998 fiscal year. The number of votes cast for, against or
withheld, as well as the number of abstentions (including broker non-votes), as
to each of such matters was as follows:
<TABLE>
<CAPTION>
Votes Votes Votes Votes
For Against Withheld Abstaining
--------- ------- -------- ----------
<S> <C> <C> <C> <C>
Gary Donald Bell 2,843,243 0 2,293 1,012
J. William Brandner 2,843,243 0 2,293 1,012
R. Van Bogan 2,843,243 0 2,293 1,012
Edwin M. Freakley 2,843,243 0 2,293 1,012
Thomas N. Grant 2,843,243 0 2,293 1,012
Philip Howe Hoard 2,843,243 0 2,293 1,012
Lester Jacobs 2,843,243 0 2,293 1,012
William A. Retz 2,843,243 0 2,293 1,012
Robert M. Smither 2,843,243 0 2,293 1,012
J. Melvin Stewart 2,843,243 0 2,293 1,012
Ratification of appointment of
BDO Seidman, LLP 2,866,969 0 0 9,551
</TABLE>
15
<PAGE>
ITEM 5. OTHER INFORMATION.
- --------------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
- -----------------------------------------------
Not applicable.
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: February 13, 1998 By: /s/ J. William Brandner
--------------------------------------
J. William Brandner, President & Chief
Executive Officer
By: /s/ Todd D. Thrasher
---------------------------------------
Todd D. Thrasher, Vice President &
Treasurer, Chief Financial Officer and
Chief Accounting Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-QSB AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1998
<PERIOD-START> JUL-01-1997 JUN-30-1997
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 2,768,259 2,768,259
<ALLOWANCES> 225,644 255,644
<INVENTORY> 1,104,546 1,104,546
<CURRENT-ASSETS> 4,677,567 4,677,567
<PP&E> 4,666,023 4,666,023
<DEPRECIATION> 1,549,508 1,549,508
<TOTAL-ASSETS> 11,044,170 11,044,170
<CURRENT-LIABILITIES> 2,323,094 2,323,094
<BONDS> 2,890,000 2,890,000
0 0
0 0
<COMMON> 3,597 3,597
<OTHER-SE> 5,360,313 5,360,313
<TOTAL-LIABILITY-AND-EQUITY> 11,044,170 11,044,170
<SALES> 9,771,147 4,689,800
<TOTAL-REVENUES> 9,771,147 4,689,800
<CGS> 5,327,422 2,638,843
<TOTAL-COSTS> 3,937,168 1,950,062
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 118,955 47,467
<INCOME-PRETAX> 459,638 99,285
<INCOME-TAX> 98,000 28,000
<INCOME-CONTINUING> 361,638 71,285
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 361,638 71,285
<EPS-PRIMARY> .10 .02
<EPS-DILUTED> .08 .02
</TABLE>
