UNITED SHIELDS CORP/OH/, 10QSB, 2000-08-18

UNITED SHIELDS CORP/OH/
10QSB, 2000-08-18
PLASTIC MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS

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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 June 30, 2000.

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT.

For the transition period from ___NA_______ to ___NA_______

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.)

2640 Peerless Road, Cleveland, Tennessee 37312

(Address of principal executive offices)

(423) 479-1655

(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

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

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: 19,454,875 shares as of August 13, 2000.

Transitional Small Business Disclosure Format (check one):

Yes

UNITED SHIELDS CORPORATION

AND SUBSIDIARIES

INDEX

Part I. Financial Information
	Item 1.	Consolidated Financial Statements
		Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999
		Consolidated Statements of Operations for the quarter ended June 30, 2000 compared to the quarter ended June 25, 1999

		Consolidated Statements of Cash Flows for the quarter ended June 30, 2000 compared to quarter ended June 25, 1999

		Notes to Consolidated Financial Statements
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

Part II. Other Information
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
Signatures

United Shields Corporation

and Subsidiaries

Consolidated Balance Sheets

			(Unaudited)
			June 30,		December 31,
			2000 -----------------		1999 -----------------
	Assets

Current Assets:

	Cash	$	188,702	$	544,980

	Accounts receivable, net		3,612,093		3,970,675

	Other receivables		17,445		20,387

	Inventories		2,484,152		2,215,560

	Prepaid expenses		28,828 -----------------		43,517 -----------------
Total current assets			6,331,220 -----------------		6,795,119 -----------------
Property, plant and equipment, at cost:

	Land		776,638		776,638

	Machinery and equipment		6,953,293		6,900,321

	Office furniture and fixtures		153,493		150,552

	Vehicles		61,084		68,058

	Building and leasehold improvements		4,036,514 -----------------		4,036,513 -----------------
			11,981,022		11,932,082
	Less accumulated depreciation		(2,032,191) -----------------		(1,405,420) -----------------
Net property, plant and equipment			9,948,831 -----------------		10,526,662 -----------------
Other assets:

	Deposits		23,719		24,882

	Restricted cash and short-term investments		944,395		944,395

	Goodwill, net		5,443,049		5,887,773

	Other		46,202 -----------------		18,523 -----------------
Total other assets			6,457,365 -----------------		6,875,573 -----------------
		$	22,737,416 ==========	$	24,197,354 ==========
The accompanying Notes to Consolidated Financial Statements are an integral part of the statements.

United Shields Corporation

and Subsidiaries

Consolidated Balance Sheets

(continued)

			(Unaudited)
			June 30,		December 31,
			2000 ----------------		1999 ----------------

	Liabilities and Stockholder's Equity

Current liabilities:

	Revolving lines of credit - current	$	1,915,235	$	2,397,432

	Notes payable - related parties - current		675,912		791,860

	Notes payable - current		624,338		642,600

	Capital lease obligation - current		62,571		57,396

	Account payable		2,742,638		2,402,657

	Accrued expenses and other current liabilities		798,464 ----------------		893,329 ----------------
Total current liabilities			6,819,158		7,185,274

Revolving lines of credit			3,256,455		3,859,455

Notes payable - related parties			1,346,211		1,286,354

Notes payable			5,621,321		5,601,177

Capital lease obligation			161,615		180,369

Deferred compensation			625,357 ----------------		625,357 ----------------
Total liabilities			17,830,117 ----------------		18,737,986 ----------------
Stockholders' equity:

	Common stock - authorized 500,000,000 shares without
	par value; stated value $0.01; issued and outstanding
	19,454,875 shares at June 30, 2000 and December
	31, 1999, respectively		194,549		194,549

	Additional paid in capital		10,725,838		10,634,172

	Accumulated deficit		(6,013,088) ----------------		(5,369,353) ----------------
Total stockholders' equity			4,907,299 ----------------		5,459,368 ----------------
		$	22,737,416 =========	$	24,197,354 =========


The accompanying Notes to Consolidated Financial Statements are an integral part of these statements

United Shields Corporation

and Subsidiaries

Consolidated Statements of Operations

				Three Months Ended --------------------------				Six Months Ended -------------------------
				June 30,		June 25,		June 30,		June 25,
				2000 ------------		1999 ------------		2000 ------------		1999 ------------
Net sales			$	6,186,881	$	3,350,365	$	11,667,338	$	6,532,899
Cost of sales				5,228,319 --------------		2,532,762 --------------		9,771,728 --------------		4,970,096 --------------
Gross profit				958,562 --------------		817,603 --------------		1,895,610 --------------		1,562,803 -------------

Operating expenses:
	Selling, general and administrativ e			845,965		658,174		1,716,516		1,299,864
	Goodwill amortization			108,578 --------------		89,391 --------------		215,602 --------------		178,780 --------------
Total operating expenses				954,543 --------------		747,565 --------------		1,932,118 --------------		1,478,644 --------------

Income (loss) from operations				4,019 --------------		70,038 --------------		(36,508) --------------		84,159 --------------
Other income (expense):
	Interest expense, net			(386,145)		(242,299)		(723,827)		(502,434)
	Gain on sale of property
		and equipment		3,783				4,283		22,487
	Other			31,935 --------------		(14,593) --------------		18,546 --------------		(12,468) --------------
Total other expense				(350,427) --------------		(256,892) --------------		(700,998) --------------		(492,415) --------------

Loss before extraordinary item				(346,408)		(186,854)		(737,506)		(408,256)

Extraordinary item - gain on restructuring of debt				47,238 --------------		- --------------		93,771 --------------		- --------------

Net loss			$	(299,170) ========	$	(186,854) ========	$	(643,735) ========	$	(408,256) ========

Weighted average number of shares outstanding -
	basic and diluted			19,454,875 ========		16,604,875 ========		19,454,875 ========		16,604,875 ========
Loss before extraordinary item per common share -
	basic and diluted		$	(0.02)	$	(0.01)	$	(0.04)	$	(0.02)

Extraordinary item per common share - basic and
	diluted			0.00 --------------		0.00 --------------		0.01 --------------		0.00 --------------
Net loss per common share - basic and diluted			$	(0.02) ========	$	(0.01) ========	$	(0.03) ========	$	(0.02) ========

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

United Shields Corporation

and Subsidiaries

Consolidated Statements of Cash Flows

					Six Months Ended ---------------------------------
					June 30, 2000 --------------		June 25, 1999 --------------
					June 30, 2000 --------------		June 25, 1999 --------------
Net cash flows provided by (used in) operating activities:
	Net loss			$	(643,735)	$	(408,256)
	Adjustments to reconcile net loss to net cash provided by
	(used in) operating activities:
		Depreciation and amortization - property and equipment			634,232		349,559
		Amortization of goodwill, warrants and debt discount			287,291		296,151
		Gain on sale of property and equipment			(4,283)		(22,487)
		Stock options issued for compensation			91,666		-
		Extraordinary item			(93,771)		-
		Changes in working capital accounts:
			Accounts and other receivables		361,524		(363,672)
			Inventories		(268,592)		(25,618)
			Prepaid expenses		14,689		3,432
			Deposits and other		(26,894)		(20,125)
			Accounts payable		339,981		332,363
			Accrued expenses and other current liabilities		(48,326)		(120,578)
					--------------		--------------
		Net cash provided by (used in) operating activities			643,782 --------------		20,769 --------------

Cash flows provided by (used in) investing activities:
	Purchases of property and equipment				(46,754)		(282,400)
	Proceeds from sale of property and equipment				10,413		31,442
	Cash received from insurance policies						32,932
	Adjustment of subsidiary acquisition purchase price				229,500		-
					--------------		--------------
		Net cash provided by (used in) investing activities			193,159 --------------		(218,026) --------------

Cash flows provided by (used in) financing activities:
	Borrowings under revolving line of credit				12,602		200,195
	Payments on revolving line of credit				(1,097,799)		-
	Borrowings under notes payable - related parties				200,000		369,515
	Payments on notes payable - related parties				(280,542)		-
	Borrowings on notes payable				350,528		-
	Payments on notes payable				(348,652)		(236,000)
	Payments on capital lease obligations				(29,356)		(175,912)
					--------------		--------------
		Net cash provided by (used in) financing activities			(1,193,219) --------------		157,798 --------------
Net decrease in cash					(356,278)		(39,459)
Cash at beginning of period					544,980		191,609
					--------------		--------------
Cash at end of period				$	188,702 ========	$	152,150 ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

United Shields Corporation

Notes To Consolidated Financial Statements

June 30, 2000

1. Company Description

United Shields Corporation ("USC" or the "Company") is a Cleveland, Tennessee-based holding company that currently owns three 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") and Pittsfield Mold and Tool, Inc. ("PMT") which are engaged in the production of molded plastic components and finished products of original equipment manufacturers.

2. Summary of Significant Accounting Policies

a. Interim Financial Statements

The June 30, 2000 and June 25, 1999 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 31,1999.

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 June 30, 2000 and June 25, 1999 because their effect, if any, would have been anti-dilutive.

United Shields Corporation

Notes to Consolidated Financial Statements, continued

e. Reclassifications

Certain prior year amounts have been reclassified in order to conform to the current year presentation.

3. Contingencies

The Company is a defendant in a case entitled Rocco and Carol D'Antonio v. United Shields Corporation et al, filed September 30, 1999 in the United States District Court, Southern District of Ohio. There has been no significant change relating to the status of this lawsuit since its disclosure in the Company's December 31, 1999 Form 10-KSB.

4. Debt Instruments

On May 3, 2000, the HMC subsidiary replaced an existing $500,000 Revolving Line of Credit Agreement ("RLCA") with Bank One, N.A. with a new RLCA. The new RLCA (i) permits borrowings up to $400,000 pursuant to a formula based on eligible accounts receivable and inventories, (ii) provides for a maturity date of May 3, 2001, (iii) provides for an adjustable interest rate that is 1.25% over the lender's prime rate, and (iv) gives the lender a security interest in substantially all assets of HMC.

In addition, on May 3, 2000, the HMC subsidiary executed a new promissory note with Bank One, N.A. in the principal amount of $350,528. The note matures on May 3, 2005, bears interest at a fixed rate of 9.75% and requires monthly payments of principal and interest. Substantially all of HMC's assets are pledged as collateral for the loan.

5. Stock Option Grant

On February 9, 2000, the Board of Directors approved the grant of a new non-qualified stock option under the amended 1998 Long-Term Incentive Plan to Donald T. Zimmerman, President of USC. Under the terms of the grant, Mr. Zimmerman has the option to buy 560,000 shares of the Company's common stock at $0.30 per share. The effective date of the grant is February 9, 2000 and the term is five years.

The purpose of the grant was to honor, satisfy and offset USC's $91,666 contractual compensation payment due Mr. Zimmerman since December, 1998 pursuant to his employment agreement with USC. The transaction was recorded as a reduction of USC's liability to Mr. Zimmerman and as additional paid-in capital (a non-cash transaction).

6. Subsequent Event

On July 24, 2000, First Union National Bank extended the term of the RPI subsidiary's Revolving Credit and Security Agreement and Revolving Promissory Note by one year to April 30,2002.

7. Extraordinary Item - Gain on Restructuring of Debt

The "extraordinary item - gain on restructuring of debt" represents (1) the reversal of interest expense and the associated accrued liability recorded in 1999 on debt owed by the Company to certain related parties that was restructured in January 2000, and (2) the gain associated with the imputing of interest on the restructured debt.

8. Business Segments

The Company has the following two reportable segments: Plastic Injection Molding and Specialty Products. The Plastic Injection Molding segment consists of the Company's RPI and PMT subsidiaries and is engaged in the production of molded plastic components and finished products for original equipment manufacturers who operate in the personal care, construction, electronics, healthcare , home products and juvenile products industries. The Specialty Products segment consists of the Company's HMC subsidiary and manufacturers and markets patented, portable electrochemical heaters and a line of shelf-stable meals that incorporate such heaters.

The accounting policies used to develop segment information correspond to those described herein. Segment profit or loss is based on profit or loss from operations before income taxes and the extraordinary gain on restructuring of debt. The 2000 extraordinary gain is recorded on the corporate books. There are no sales or transfers of inventories or human capital between segments. The reportable segments are distinct business units operating in different industries. They are separately managed, with separate marketing, manufacturing and distribution systems. The following information about the two segments is for the six months ended June 30, 2000:

			Plastic Injection Molding ----------------		Specialty Products ----------------		Totals ----------------
Revenues from external		$	9,004,492	$	2,662,846	$	11,667,338
	customers	$	9,004,492	$	2,662,846	$	11,667,338
Interest expense, net (1)			500,431		18,965		519,396
Depreciation and amortization			590,831		41,565		632,396
Segment profit (loss)			(185,401)		77,764		(107,637)
Segment assets			18,872,499		3,516,428		22,388,927
Expenditures for segment assets			30,452		32,079		62,531

Reconciliation to Consolidated Amounts:			Revenues ----------------		Profit (loss) ----------------		Assets ----------------
Totals for reportable segments		$	11,667,338	$	(107,637)	$	22,388,927
Corporate headquarters			-		-		348,489
Elimination of inter-segment			-		-		-
	profit (loss)		-		-		-
Unallocated corporate			- ----------------		(629,869) ----------------		- ----------------
	headquarters expense (2)		- ----------------		(629,869) ----------------		- ----------------
Total consolidated amounts		$	11,667,338 =========	$	(737,506) =========	$	22,737,416 =========

Reconciliation to Consolidated Amounts:			Interest expense, net ----------------		Depreciation and amortization ----------------
Totals for reportable segments		$	519,396	$	632,396
Other			-		-
Elimination of inter-segment profit (loss)			-		-
Unallocated corporateheadquarters expense (2)			204,431 ----------------		1,836 ----------------
Total consolidated amounts		$	723,827 =========	$	634,232 =========

The following information about the two segments is for the period ended June 25, 1999:

			Plastic Injection Molding --------------		Specialty Products --------------		Totals --------------

Revenues from external		$	3,792,858	$	2,740,041	$	6,532,899
	customers	$	3,792,858	$	2,740,041	$	6,532,899
Interest expense, net (1)			214,771		7,147		289,918
Depreciation and amortization			309,117		38,606		347,723
Segment profit (loss)			(85,716)		219,244		133,528
Segment assets			10,515,994		3,212,295		13,728,289
Expenditures for segment assets			261,762		20,638		282,400

Reconciliation to Consolidated Amounts:			Revenues ---------------		Profit (loss) ----------------		Assets ---------------

Totals for reportable segments		$	6,532,899	$	133,528	$	13,728,289
Corporate headquarters			-		-		109,888
Elimination of intersegment			-		-		-
	profit (loss)		-		-		-
Unallocated corporate			- ---------------		(541,784) ---------------		- ---------------
	headquarters expense (2)		- ---------------		(541,784) ---------------		- ---------------
Total consolidated amounts		$	6,532,899 ========	$	(408,256) ========	$	13,838,177 ========

Reconciliation to Consolidated Amounts:			Interest expense, net ---------------		Depreciation and amortization ---------------

Totals for reportable segments		$	289,918	$	347,723
Other			-		-
Elimination of inter-segment			-		-
	profit (loss)		-		-
Unallocated corporate			212,516 ---------------		1,836 ---------------
	headquarters expense (2)		212,516 ---------------		1,836 ---------------
Total consolidated amounts		$	502,434 ========	$	349,559 =========

(1) Interest expense, net for the Company's Specialty Products segment includes non-cash warrant

amortization of $0 and $60,045 for the periods ended June 30, 2000 and June 25, 1999.

(2) Interest expense, net for the Company's corporate headquarters includes non-cash warrant and debt discount amortization of $71,688 and $59,856 for the periods ended June 30, 2000 and June 25, 1999.

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 product that competes with HeaterMeals (R) 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; and 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. 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 quarter and six month periods ended June 30, 2000, compared to the quarter and six month periods ended June 25, 1999, and changes in financial condition for the first six months of 2000:

NET SALES. Net sales for the quarter and six month periods ended June 30, 2000, increased $2,836,516 or 84.7% and $5,134,439 or 78.6%, respectively, over sales recorded for the quarter and six month periods ended June 25, 1999. The increase primarily reflects the effect on 2nd quarter 2000 and year-to-date sales of the PMT acquisition in September, 1999. Sales of the RPI and HMC subsidiaries showed increases of 3.4% and 9.0%, respectively, in the 2nd quarter 2000 versus the 2nd quarter of 1999; however, sales of both subsidiaries were down by 2.8% over the six month period ended June 30, 2000 compared to the same period in 1999.The increase in RPI 2nd quarter sales resulted primarily from sales volume increases to existing customers. The increase in 2nd quarter HMC sales resulted from the successful introduction of a new product, Heatermeal Plus, to the subsidiary's line of shelf-stable meals. The decline in year-to-date subsidiary sales compared to the prior year was attributable to lower sales volume during the 1st quarter versus the comparable quarter in 1999. Sales of shelf-stable meals sold by HMC actually increased somewhat in the 1st quarter versus the comparable quarter in 1999; however, this increase was offset by a decrease in sales of the subsidiary's electrochemical heaters to military suppliers. This decrease resulted from delays in the final awarding of new contracts for MRE Assembly Award XX. In February 2000, HMC signed a three-year contract with one prime contractor to supply flameless ration heaters (FRHs) for MREs through 2002. In addition, a new prime contractor was added with a one-year contract. HMC anticipates making up for lost first quarter FRH sales during the balance of the new contract year that began in March 2000.

COST OF SALES. Cost of sales for the quarter and the six month periods ended June 30, 2000, increased $2,695,557 or 106.4% and $4,801,632 or 96.6%, respectively, over cost of sales recorded for the comparable 1999 periods. The increases primarily reflect the effect of the September, 1999, PMT acquisition, as well as cost of sales increases in the 2nd quarter of 2000 compared to the prior year at the RPI and HMC subsidiaries that resulted from increased sales volume.

GROSS PROFIT. Gross profit increased $140,959 or 17.2% and $332,807 or 21.3%, respectively, in the quarter and six month periods ended June 30, 2000, compared to similar periods in the prior year; however, the gross profit percentage decreased from 24.4% to 15.5% during the 2nd quarter 2000 compared to 2nd quarter 1999, and from 23.9% to 16.2% during the comparable year-to-date period. The increase in gross profit in both periods reflects the acquisition of the PMT subsidiary in September 1999, which increase was partially offset by a decrease in gross profit at HMC and RPI in both the quarter and the year-to-date 2000 periods compared to the prior year. The decline in the gross profit percentage overall and the decline in gross profit dollars at HMC and RPI compared to the year earlier period are reflective of the following: 1) low margin product pricing relating to a significant PMT customer who was a customer when PMT was acquired; 2) other transition costs associated with the PMT acquisition; 3) lower sales volume and product mix changes at RPI; and 4) lower HMC sales volume, increased labor expense relating to the production of a new product (HeaterMeals Plus) and the addition of a 2nd shift to handle increased FRH production, and an FRH price reduction.

OPERATING EXPENSES. Operating expenses increased $206,978 or 27.7% and $453,474 or 30.7%, respectively, in the quarter and six month periods ended June 30, 2000, compared to the similar quarter and six month periods in 1999. Operating expenses of the PMT subsidiary, which was acquired September 29, 1999, totaled $178,827 in the quarter and $342,248 year-to-date. The remaining increase related primarily to marketing and legal expenses incurred by HMC and the corporate office.

INTEREST EXPENSE, NET. Interest expense, net increased $143,846 or 59.4% and $221,393 or 44.1%, respectively, in the quarter and six month periods ended June 30, 2000 versus the comparable quarter and year-to-date periods ended June 25,1999. Interest expense incurred by the PMT subsidiary, which was acquired September 29, 1999, was $189,058 and $353,600, respectively, in the quarter and year-to-date periods ended June 30,2000. These increases were partially offset by a $45,212 and $132,207 cumulative decrease in interest expense at RPI, HMC and the corporate office during the quarter and year-to-date periods ended June 30,2000, respectively, compared to similar periods in 1999. These decreases are reflective of lower debt balances during the quarter and year-to-date periods ended June 30, 2000, compared to the quarter and year-to-date periods ended June 25, 1999.

EXTRAORDINARY ITEM - GAIN ON RESTRUCTURING OF DEBT The "extraordinary item - gain on restructuring of debt" in the consolidated financial statements represent (1) the reversal of interest expense and the associated accrued liability recorded in 1999 on debt owed by the Company to certain related parties that was restructured in January 2000, and (2) the gain associated with the recording of imputed interest on the restructured related party note.

INCOME TAXES. No income tax benefits attributable to the losses from continuing operations were recorded in the quarter or year-to-date periods ended June 30, 2000 and June 25, 1999, as a result of the uncertainty associated with the realization of these tax deferred assets.

Liquidity and Capital Resources

The Company's primary source of liquidity has been cash generated from operating activities, borrowings from related parties and financial institutions, and proceeds from the issuance of the Company's Common Stock through its private placement program.

During the six months ended June 30, 2000, net cash provided by operations of $643,782, net cash provided by investing activities of $193,159, and cash at the beginning of the quarter totaling $544,980 were used to fund financing activities of $1,193,219. Net cash provided by operating activities resulted primarily from the collection of accounts receivable, an increase in accounts payable, and from non-cash depreciation and amortization expenses. These sources of funds were partially offset by increases in inventories, reductions in accrued expenses and other current liabilities and a net loss for the period. Net cash provided by investing activities resulted from cash received from the prior owner of PMT as an adjustment to the acquisition purchase price, which was partially offset by purchases of property and equipment. Net cash provided by these operating and investing activities was used to reduce outstanding debt of the Company. As of July 31, 2000, the Company was in violation of a financial covenant related to a certain note payable balance. This covenant violation has since been waived by the financial institution.

It is anticipated that the Company's HMC and RPI subsidiaries will generate sufficient cash to fund their own operations and at least partially fund the Company's corporate operations and financial obligations as they become due in the immediate future. However, the PMT subsidiary may require funding, and corporate operations will require funding from external sources in the 3rd quarter of 2000 and beyond. Although management believes that sufficient external financing sources are available to fund these needs, there can be no assurance that this will be the case. In the event that external financing would not be available, the Company would seek related-party financing; however, there can be no assurance that this type of financing would be available or that it would be available with terms favorable to the Company. In the event that these financial resources would not be available, the Company would be required to scale back or eliminate certain corporate functions and/or sell some of its products or producing assets.

Part II - Other Information

Item 1. - Legal Proceedings

The Company is a defendant in a case entitled Rocco and Carol D'Antonio v. United Shields Corporation et al, filed September 30, 1999 in the United States District Court, Southern District of Ohio. There has been no significant change in the status of this lawsuit since its disclosure in the Company's December 31, 1999 Form 10-KSB.

Item 6. - Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit

Number

Description of Exhibit

Financial Data Schedule

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: 8/11/00

/s/William A. Frey III

William A. Frey III

Chairman and Chief Executive Officer

Date: 8/11/00

/s/Donald T. Zimmerman, Jr.

Donald T. Zimmerman, Jr.

President and Chief Operating Officer

Date: 8/11/00

/s/John F. Quigley

John F. Quigley

Senior Vice President and Chief Financial Officer