U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 26, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT.
For the transition period from __________ to __________
Commission file number 33-11062-D
UNITED SHIELDS CORPORATION
(Exact name of small business issuer as specified in its charter)
Colorado 84-1049047
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
655 Eden Park Drive, Suite 260, Cincinnati, Ohio 45202
(Address of principal executive offices)
(513) 241-7470
(Issuer's telephone number)
_________________________________________________________________
(Former name, former address and former fiscal year, if
changes since last report.)
Check whether the issuer (1) filed all reports required to be filed by Section
3 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports to be filed by
sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 16,604,375 shares as of
April 30, 1999.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
UNITED SHIELDS CORPORATION
INDEX
Part I. Financial Information Page No.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
March 26, 1999 and December 25, 1998 3
Consolidated Statements of Operations
for the quarterly periods ended
March 26, 1999 and April 3, 1998 5
Consolidated Statements of Cash Flows
for the quarterly periods ended
March 26, 1999 and April 3, 1998 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 14
<PAGE>
<TABLE>
United Shields Corporation
Consolidated Balance Sheets
<CAPTION>
(unaudited) December 25,
March 26, 1999 1998
<S> <C> <C>
Assets
Current Assets:
Cash $ 132,641 $ 191,609
Accounts receivable, net 1,752,991 1,543,923
Other receivables 1,503 14,447
Inventories 1,323,196 1,321,168
Prepaid expenses 32,747 20,947
----------- -----------
Total current assets 3,243,078 3,092,094
Property, plant and equipment, at cost:
Land 399,838 399,838
Machinery and equipment 3,673,712 3,485,620
Office furniture and fixtures 77,618 75,620
Vehicles 43,123 21,850
Building and leasehold improvements 1,286,514 1,285,883
--------- ----------
5,480,805 5,268,811
Less accumulated depreciation (790,608) (619,236)
--------- ----------
Net property, plant and equipment 4,690,197 4,649,575
--------- ----------
Other assets:
Deposits 83,649 59,148
Cash surrender value of life insurance 979,345 961,845
Goodwill, net 4,900,989 4,990,379
Other 30,959 6,438
--------- ----------
Total other assets 5,994,942 6,017,810
--------- ----------
$13,928,217 $ 13,759,479
========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are
an integral part of this statement.
<PAGE>
<TABLE>
United Shields Corporation
Consolidated Balance Sheets
<CAPTION>
(unaudited) December 25,
March 26, 1999 1998
<S> <C> <C>
Liabilities and Stockholder's Equity
Current liabilities:
Revolving line of credit $ 240,682 $ - -
Notes payable - related parties - current 590,845 441,345
Capital lease obligation - current 90,993 140,895
Accounts payable 1,519,050 1,318,041
Accrued expenses and other current liabilities 907,818 1,001,410
---------- ----------
Total current liabilities 3,349,388 2,901,691
Revolving line of credit - - 91,487
Notes payable - related parties 1,196,566 1,166,636
Long-term debt 3,884,060 3,880,060
Deferred compensation 625,357 625,357
---------- ----------
<PAGE>
Total liabilities 9,055,371 8,665,231
---------- ----------
Stockholder's equity:
Common stock - authorized 500,000 shares
without par value; stated value $0.01;
issued and outstanding 16,604,875 and
11,530,100 at March 26, 1999 and
December 25, 1998, respectively 166,049 166,049
Additional paid in capital 9,380,172 9,380,172
Accumulated deficit (4,673,375) (4,451,973)
---------- ----------
Total stockholder's equity 4,872,846 5,094,248
---------- ----------
$13,928,217 $13,759,479
---------- ----------
---------- ----------
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of this statement.
<PAGE>
<TABLE>
United Shields Corporation
Consolidated Statement of Operations
(unaudited)
<CAPTION>
Three Months Ended:
----------------------------------
March 26, 1999 April 3, 1998
---------------- --------------
<S> <C> <C>
Net sales $3,182,534 $3,224,061
Cost of sales 2,437,335 2,525,152
---------------- --------------
Gross profit 745,199 698,909
Operating expenses:
Selling, general and administrative expenses 641,689 774,255
Goodwill amortization 89,390 89,390
---------------- --------------
Total operating expenses 731,079 863,645
---------------- --------------
Income (loss) from operations 14,120 (164,736)
---------------- --------------
Other income (expense):
Interest expense, net (260,135) (134,326)
Gain (loss) on sale of property and equipment 22,487 (5,000)
Other income 2,126 (2,819)
---------------- --------------
Total other expense (235,522) (142,145)
---------------- --------------
Loss before income taxes and extraordinary item (221,402) (306,881)
Income taxes -- --
---------------- --------------
Net loss $(221,402) $(306,881)
---------------- --------------
---------------- --------------
Weighted average shares outstanding:
Basic and diluted 16,604,875 11,980,834
---------------- --------------
---------------- --------------
Net loss per common share - basic and diluted $ (0.01) $ (0.03)
---------------- --------------
---------------- --------------
The Notes to Consolidated Financial Statements are an
integral part of this statement.
</TABLE>
<PAGE>
<TABLE>
United Shields Corporation
Consolidated Statement of Cash Flows
(unaudited)
<CAPTION>
Three Months Ended:
----------------------------------
March 26, April 3,
1999 1998
---------------- --------------
<S> <C> <C>
Net cash flows provided by (used in)
operating activities:
Net loss $ (221,402) $ (306,881)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization - property
and equipment 174,762 159,232
Amortization of goodwill and warrants 156,060 152,215
Gain on sale of property and equipment (22,487) - -
Changes in working capital accounts:
Accounts and other receivables (196,124) (38,325)
Inventories (2,028) 86,288
Prepaid expenses (11,800) (4,437)
Deposits and others (49,022) (4,994)
Accounts payable 201,009 112,406
Accrued expenses and other current liabilities (93,592) (132,200)
---------------- --------------
<PAGE>
Net cash provided by (used in) operating activities (64,624) 23,304
---------------- --------------
Cash flows provided by (used in) investing activities:
Purchases of property and equipment (224,339) (18,682)
Proceeds from sale of property and equipment 31,442 - -
Investment in potential acquisitions - - (10,484)
Increase in cash surrender value of life insurance
policies (17,500) (17,500)
---------------- --------------
Net cash used in investing activities (210,397) (46,666)
---------------- --------------
Cash flows provided by (used in) financing activities:
Borrowings under revolving line of credit 149,195 - -
Borrowings under notes payable - related parties 149,500 - -
Payments on notes payable - related parties - - (548,900)
Payments on long-term debt - - (140,940)
Borrowings on long-term debt 4,000 - -
Payments on capital lease obligation (86,642) (122,545)
Proceeds from issuance of common stock, net of expenses - - 349,734
---------------- --------------
Net cash provided by (used in) financing activities 216,053 (462,651)
---------------- --------------
Net increase (decrease) in cash (58,968) (486,013)
Cash at beginning of period 191,609 512,839
---------------- --------------
Cash at end of period 132,641 26,826
---------------- --------------
---------------- --------------
</TABLE>
The Notes to Consolidated Financial Statements are an integral
part of this statement<PAGE>
United Shields Corporation
Notes To Consolidated Financial Statements
March 26, 1999
1. Company Description
United Shields Corporation ("USC" or the "Company") is a
Cincinnati, Ohio based holding company that currently owns two
operating subsidiaries: The HeaterMeals Company ("HMC"), which
manufactures and markets patented, portable electrochemical
heaters and a line of shelf-stable meals that incorporate such
heaters, and R. P. Industries, Inc. ("RPI") which is engaged in
the production of molded plastic components and finished
products for original equipment manufacturers.
2. Summary of Significant Accounting Policies
a. Interim Financial Statements
The March 26, 1999 and April 3, 1998 financial data are
unaudited, however, in the opinion of management, the
accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the
consolidated financial statements for the respective
periods. Interim results are not necessarily indicative of
results for a full year. The consolidated financial
statements should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto
for the fiscal year ended December 25, 1998.
The unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB
and therefore, do not include all information and footnotes
necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with
generally accepted accounting principles.
b. Principles of Presentation
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries after
elimination of intercompany balances and transactions.
c. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts
of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
d. Per Share Data
The Company has adopted Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS No. 128). Basic
earnings per share is computed based on the weighted
average number of shares outstanding during the period.
Diluted earnings per share gives effect to all dilutive
potential common shares outstanding during this period.
Potential common shares include shares issuable upon
exercise of the Company's stock options and warrants.
Potential common shares relating to options and warrants to
purchase common stock were not included in the weighted
average number of shares for the quarterly periods ended
March 26, 1999 and April 3, 1998 because their effect would
have been anti-dilutive.
<PAGE>
United Shields Corporation
Notes To Consolidated Financial Statements, continued
March 26, 1999
f. Reclassifications
Certain prior year amounts have been reclassified in order
to conform to the current year presentation.
g. Statement of Cash Flows Data
On March 30, 1998, the Company issued 500,000 stock
purchase warrants to NAVICAP Corporation in connection with
an extension of the due date of the NAVICAP promissory note
to September 30, 1999. The fair value of the stock
purchase warrants was determined to be $1,059,500, which
was allocated to the warrants and recorded as additional
paid in capital (non-cash transaction).
2. Contingencies
The Company is involved in litigation and other matters which
involve routine matters incident to the Company's business.
In the opinion of management, the ultimate disposition of such
litigation and matters will not have a material effect upon
the Company's financial statements.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Safe Harbor Clause
This report contains certain "forward-looking
statements". The Company desires to take advantage of
the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 and is including this
statement for the express purpose of availing itself of
the protection of such safe harbor with respect to all
such forward-looking statements. These forward-looking
statements, which are included in Management's Discussion
and Analysis, describe future plans or strategies and
include the Company's expectations of future financial
results. The words "expect," "estimate," "anticipate,"
"predict," and similar expressions are intended to
identify forward-looking statements. Important factors
that could cause the actual results, performance or
achievement of the Company to differ materially from the
Company's expectations include the following: 1) one or
more of the assumptions or other factors discussed in
connection with particular forward-looking statements
prove not to be accurate; 2) the Company is unsuccessful
in increasing sales through its anticipated marketing
efforts; 3) mistakes in cost estimates and cost over-
runs; 4) the Company's inability to obtain financing for
one or more acquisitions and/or for general operations;
5) non-acceptance of one or more products of the Company
in the marketplace due to costs or other reasons; 6) the
Company's inability to supply any product to meet market
demand; 7) generally unfavorable economic conditions
which would adversely effect purchasing decisions by
retailers or consumers; 8) development of a similar
competing product with HeaterMeals(reg) which is not an
infringement of any of the patents pertaining to those
products; 9) inability of the owner of any of the patents
to protect against infringement; 10) the inability to
successfully integrate one or more acquisitions with the
Company's operations (including the inability to
successfully integrate several acquisitions at the same
time, integrate businesses which may be diverse as to
type of business, geographic area, or customer base and
the diversion of management's attention among several
acquired businesses) without substantial costs, delays or
other problems; 11) if the Company experiences labor
and/or employment problems such as work stoppages,
inability to hire and/or retain competent personnel; 12)
a shortage in the supply of significant raw materials,
such as plastic resin and magnesium, which would
significantly increase the cost of goods sold; 13) if the
Company experiences unanticipated problems (including but
not limited to accidents, fires, acts of God, etc.), or is
adversely affected by problems of its suppliers, shippers,
customers or others; and 14) potential material adverse
consequences to the Company relating to the Year 2000
issue. All written or oral forward-looking statements
attributable to the Company are made as of the date hereof,
and the Company assumes no obligation to update the
forward-looking statements, or to update the reasons why
actual results could differ materially from those projected
in the forward-looking statements.
Results of Operations
The following is a discussion of the results of operations
for the quarterly periods ended March 26, 1999 and April 3,
1998 and changes in financial condition during the first
quarter of 1999.
NET SALES. Net sales for the quarter ended March 26, 1999
declined slightly to $3,182,534 as compared to $3,224,061
for the quarter ended April 3, 1998. Net sales of HMC
increased 37% in the first quarter of 1999 as compared to
the first quarter of 1998, while net sales of RPI declined
15% in the first quarter of 1999 as compared to the first
quarter of 1998. The increase in net sales of HMC was due
to additional volumes related to its electrochemical
heaters and its shelf-stable meals, which incorporate such
heaters, and from price increases related to its shelf-
stable meals. The decline in sales of RPI was attributable
to lower volumes during the quarter versus the comparable
period in 1998.
COST OF SALES. Cost of sales for the quarter ended March
26, 1999 declined 3% to $2,437,335 as compared to
$2,525,152 for the quarter ended April 3, 1998. A 22%
increase in HMC's cost of sales resulted from substantially
higher volumes offset by more efficient manufacturing
operations during the quarter ended March 26, 1999 as
compared to the quarter ended April 3, 1998. A 14%
decrease in RPI's cost of sales during the quarter ended
March 26, 1999 as compared to the quarter ended April 3,
1998 resulted from lower volumes and more efficient
manufacturing operations.
GROSS PROFIT. Gross profit increased 7% to $745,199 during
the quarter ended March 26, 1999 as compared to $698,909
during the quarter ended April 3, 1998. Similarly, the
gross profit percentage increased to 23% for the quarter
ended March 26, 1999 as compared to 22% for the quarter
ended April 3, 1998. The improvements in gross profit and
gross profit percentages were due primarily to substantial
volume and gross profit improvements with respect to HMC as
a result of the implementation of material cost reductions,
automation of processes and other efficiencies, and a
modest increase in prices, net of a slight decline in RPI's
gross profit as a result of lower volumes during the
quarterly period ended March 26, 1999.
OPERATING EXPENSES. Operating expenses decreased 15% to
$731,079 during the quarter ended March 26,1999 as compared
to $863,645 during the quarter ended April 3, 1998
principally as a result of cost containment measures
initiated during the second half of 1998 at all of the
Company's operations which continued during the first
quarter of 1999. Operating expenses were 23% and 27% of
net sales for the quarterly period ended March 26, 1999 and
April 3, 1998, respectively.
INTEREST EXPENSE, NET. Interest expense, net increased to
$260,135 during the quarter ended March 26, 1999 as
compared to $134,326 during the quarter ended April 3, 1998
as a result of additional borrowings during the first
quarter of 1999 as compared to the first quarter of 1998
and because first quarter 1998 interest charges in the
amount of $106,773 were waived by NAVICAP Corporation.
INCOME TAXES. No income tax benefits attributable to the
losses from continuing operations were recorded in the
quarters ended March 26, 1999 and April 3, 1998 as a result
of uncertainty associated with the realization of these
deferred tax assets.
Liquidity and Capital Resources
The Company's principal cash requirements are for operating
expenses, capital expenditures and repayment of capital
lease obligations. Historically, the Company's primary
sources of cash have been from operations, borrowings from
related parties and financial institutions, and the
proceeds from the sale of the Company's common stock
through its private placement programs.
During the first quarter of 1999, cash provided by
financing activities of $216,053 was utilized to fund
operating and investing activities in the amounts of
$64,624 and $210,397, respectively. The net cash provided
by financing activities was comprised of $298,695 in
borrowings under the Company's revolving line of credit and
under notes payable to related parties, $4,000 in
additional borrowings under the Company's long-term debt
facility and principal payments of $86,642 related to the
Company's capital lease obligation. The net cash flows
used in investing activities were comprised of $224,339 in
purchases of property and equipment, proceeds of $31,442
from the sale of property and equipment and $17,500 related
to the increase in cash surrender value of life insurance
policies. At March 26, 1999, the Company was in violation
of certain financial covenants related to it long-term debt
facility, which covenant violations have since been waived
by the financial institution.
While it is anticipated that the Company's subsidiaries
will generate sufficient cash flow and have sufficient
resources to fund their operations and financial
obligations as they become due in 1999, the Company's
corporate operations will require additional financial
resources to support itself during 1999, although it is
anticipated that the Company's HMC subsidiary will be able
to provide a substantial amount of financing for the
Company's corporate operations during the last half of 1999
after it completes the required payments under the
Company's capital lease obligation.
Accordingly, in an effort to provide financing for the
Company's corporate operations during the first half of
1999 and to provide financial resources to complete desired
acquisitions, the Company embarked on a project to
refinance its indebtedness with respect to its RPI
subsidiary. In March 1999, the Company executed commitment
letters with a national corporate finance institution to
provide term and revolving loan facilities to accomplish
the refinance project. The Company anticipates the closing
of the refinance project in the second quarter of 1999;
however, the commitment letters are contingent upon the
successful completion of numerous pre-closing activities,
including among other things, completion of the loan
documentation and environmental and other studies.
During the first four months of 1999, financing of the
Company's corporate operations has been provided by the
Company's Vice Chairman, related family members and the
Chairman and Chief Executive Officer. Management is
continuing to evaluate opportunities with various investors
to raise additional capital, without which the Company's
growth will be restricted. Although management believes
that sufficient financing resources are available, there
can be no assurance that such resources will continue to be
available to the Company or that they will be available on
terms favorable to the Company. In the event, the
refinance project can not be completed and if financial
resources are not otherwise available to support the
Company's corporate operations, then the Company will be
required to scale back or eliminate certain corporate
functions or sell some of its products or operating assets.
<PAGE>
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 27 Financial Data Schedule
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
UNITED SHIELDS CORPORATION
Date: May 9, 1999 /s/ William A. Frey III
-----------------------
William A. Frey III
Chairman of the Board
and Chief Executive Officer
Date: May 9, 1999 /s/ Jeffrey A. Pakrosnis
------------------------
Jeffrey A. Pakrosnis
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-26-1999
<CASH> 132,641
<SECURITIES> 0
<RECEIVABLES> 1,752,991
<ALLOWANCES> 0
<INVENTORY> 1,323,196
<CURRENT-ASSETS> 3,243,078
<PP&E> 5,480,805
<DEPRECIATION> 790,608
<TOTAL-ASSETS> 13,928,217
<CURRENT-LIABILITIES> 3,349,388
<BONDS> 0
0
0
<COMMON> 166,049
<OTHER-SE> 4,706,797
<TOTAL-LIABILITY-AND-EQUITY> 13,928,217
<SALES> 3,182,534
<TOTAL-REVENUES> 3,182,534
<CGS> 2,437,335
<TOTAL-COSTS> 3,168,414
<OTHER-EXPENSES> (24,613)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 260,135
<INCOME-PRETAX> (221,402)
<INCOME-TAX> 0
<INCOME-CONTINUING> (221,402)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (221,402)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
