SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 0-25384
LAFAYETTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3190678
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
140 HINSDALE STREET, BROOKLYN, NY 11207
(Address of principal executive offices)
(718) 346-3099
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At September 30, 1996 there
were outstanding 5,335,802 shares of the Registrant's Common Stock, $.01 par
value.
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Pages(s)
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets - September 30,
1996 (Unaudited) and December 31, 1995 3
Consolidated Condensed Statements of Operations - Nine
and Three Months Ended September 30, 1996 and 1995
(Unaudited) 4
Consolidated Condensed Statements of Cash Flows - Nine
Months Ended September 30, 1996 and 1995 (Unaudited) 5
Notes to Interim Consolidated Condensed Financial
Statements (Unaudited) 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II.Other Information 15
SIGNATURES 16
EXHIBITS:
EXHIBIT 11 - Computation of Earnings Per Common Share
EXHIBIT 27 - Financial Data Schedule
2
<PAGE>
PART I. Financial Information
ITEM1. Financial Statements
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited)
- ASSETS -
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 69,910 $ 42,283
Accounts receivable - net of allowance for doubtful accounts of
$20,000 and $99,268, respectively 1,502,609 2,405,976
Inventories 866,395 743,937
Due from affiliate 50,337 50,337
Due from officers 104,610 104,610
Prepaid expenses and other current assets 225,921 143,895
Refundable income taxes 190,414 349,664
Due from supplier 387,832 330,714
Net assets of discontinued subsidiaries (Note 3) 388,716 130,060
------------ ------------
TOTAL CURRENT ASSETS 3,786,744 4,301,476
FIXED ASSETS (Note 4) 5,363,576 5,315,323
OTHER ASSETS (Note 5) 318,944 547,641
------------ ------------
$ 9,469,264 $ 10,164,440
------------ ------------
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Note Payable - finance company (Note 2) $ 618,380 $ 2,852,989
Accounts payable and accrued expenses 1,560,154 2,220,523
Due to related party 628,850 37,000
Mortgages payable (Note 2) 2,078,718 1,353,718
Current portion of long-term debt (Note 2) 421,667 255,000
Capitalized lease obligations - current portion 601,745 140,788
------------ ------------
TOTAL CURRENT LIABILITIES 5,909,514 6,860,018
------------ ------------
LONG-TERM LIABILITIES:
Capitalized lease obligations -- 390,414
Convertible debentures 750,000 --
Notes Payable (Note 2) 333,333 --
------------ ------------
1,083,333 390,414
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 3)
SHAREHOLDERS' EQUITY (Note 6):
Common stock, $.01 par value: 20,000,000 shares authorized,
5,335,802 shares (September 30, 1996) and 2,532,500 shares
issued and outstanding (including 982,500 shares placed in
escrow) as of December 31, 1995 respectively 53,358 25,325
Additional paid-in capital 5,976,132 4,249,040
Retained earnings (deficit) (3,541,301) (1,348,585)
Foreign currency translation (11,772) (11,772)
------------ ------------
2,476,417 2,914,008
------------ ------------
$ 9,469,264 $ 10,164,440
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1996 1995 1996 1995
(As restated- (As restated-
see Note 3) see Note 3)
<S> <C> <C> <C> <C>
NET SALES $ 5,681,429 $ 13,618,577 $ 1,054,589 $ 5,840,080
COST OF GOODS SOLD 4,166,490 9,608,886 797,628 4,281,585
------------ ------------ ------------ ------------
GROSS PROFIT 1,514,939 4,009,691 256,941 1,558,495
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling expenses 620,426 138,129
General and administrative expenses 2,559,215 648,039
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 3,179,641 3,210,741 786,168 1,215,616
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,664,702) 798,950 (529,227) 342,879
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest Expense (180,301) (233,411) (25,392) (98,785)
Interest and other income 14,530 226,884 (3,281) 141,899
------------ ------------ ------------ ------------
(165,771) (6,527) (28,673) 43,114
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (1,830,473) 792,423 (557,900) 385,993
Provision (credit) for income taxes -- 267,465 -- 144,284
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (1,830,473) 524,958 (557,900) 241,709
Income (loss) from operations of discontinued
subsidiaries - net of income taxes (Note 3) (362,263) 320,657 36,022 195,459
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (2,192,736) $ 845,615 $ (521,878) $ 437,168
------------ ------------ ------------ ------------
EARNINGS (LOSS) PER COMMON
SHARE (Note 7):
Continuing operations $ (.51) $ .34 $ (.14) $ .15
Discontinued operations (.10) .21 .01 .12
------------ ------------ ------------ ------------
$ (.61) $ .55 $ (.13) $ .27
------------ ------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(Note 7) 3,593,571 723,950 3,862,143 1,659,273
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1996 1995
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $(2,192,716) $ 845,615
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Depreciation and amortization 466,829 192,490
Consulting fees 9,375 45,000
Provision for losses on accounts receivable 22,500
Changes in assets and liabilities:
(Increase) in due from suppliers (57,118) --
Decrease (increase) in accounts receivable 834,979 (2,508,255)
(Increase) in inventories (171,526) (1,362,740)
Decrease (increase) in prepaid expenses and other current assets 61,119 (593,878)
Decrease in security deposits and other assets 4,500 4,459
Increase (decrease) in accounts payable, accrued expenses (468,224) 2,400,824
Increase in due to related party 570,335 --
Increase (Decrease) in income taxes payable 159,250 180,754
----------- -----------
Net cash (used) provided by operating activities (783,197) (773,231)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (28,543) (2,524,613)
Organization costs (30,087) (702,039)
Loans and advances to officer -- (27,693)
----------- -----------
Net cash (used) by investing activities (58,630) (3,254,345)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) proceeds from notes payable (2,653,055) 3,296,555
Repayment of capitalized leases (89,521) (27,478)
Repayment of loans payable -- (33,750)
Proceeds from mortgage and equipment financing 725,000 --
Financing costs (118,095) --
Proceeds from term loan 500,000 --
Proceeds from issuance of promissory notes and convertible debentures 750,000 --
Net proceeds from sale of common stock 1,755,125 600,000
----------- -----------
Net cash provided by financing activities 869,454 3,835,327
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 27,627 (192,249)
Cash and cash equivalents, at beginning of year 42,283 295,795
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 69,910 $ 103,546
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest - net of amounts capitalized 106,301 $ 260,493
Taxes -- 407,427
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim
consolidated condensed financial statements of Lafayette Industries,
Inc. (the "Company") and its subsidiaries, contain all adjustments
necessary (consisting of normal recurring accruals or adjustments only)
to present fairly the Company's financial position as of September 30,
1996 and the results of its operations for the nine and three month
periods ended September 30, 1996 and 1995 and its cash flows for the
nine month periods ended September 30, 1996 and 1995.
The consolidated financial statements include the accounts of Lafayette
Industries, Inc. (the "Company") and its wholly-owned subsidiaries, TDH
Lafayette Industries, Inc. ("TDH"), Sun Belt Fixtures, Inc. ("Sun
Belt"), Lafayette Products, S.A. de C.V. ("Lafayette Mexico") and
Enterprise Realty ("Realty"). All material intercompany balances and
transactions have been eliminated in consolidation.
See also Note 3 re: discontinued operations.
The accounting policies followed by the Company are set forth in Note 2
to the Company's consolidated financial statements for the year ended
December 31, 1995 included in its Annual Report on Form 10-KSB, which
is incorporated herein by reference. Specific reference is made to this
report for a description of the Company's securities and the notes to
consolidated financial statements included therein.
The results of operations for the nine and three month periods ended
September 30, 1996 and 1995 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - GOING CONCERN UNCERTAINTY:
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company
sustained losses of approximately $1,912,000 for the year ended
December 31, 1995, loses for the current nine month period ended
September 30, 1996 of $2,193,000 and has used substantial amounts of
working capital in its operations. At September 30, 1996, the Company
reflected negative working capital of $2,122,770. At December 31, 1995
current liabilities exceeded current assets by $2,558,542. Further, in
February 1996, the lender which had provided an asset based line of
credit to the Company, suspended making advances under this line
because the Company submitted accounts receivable to the lender which
were in violation of the terms of the agreement. In April 1996, a bank
which had provided the Company with mortgage financing for a building
located in Islandia, New York, notified the Company that it was in both
technical and monetary default of the agreements and a demand for full
payment of principal and accrued interest was made. In January 1996,
the Company obtained mortgage financing for its building in Brooklyn,
New York. In April 1996, the bank which provided this mortgage
financing notified the Company that it was accelerating the full
balance of the notes due to non-payment and required immediate payment
of all principal, accrued interest, late charges and attorney's fees.
6
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - GOING CONCERN UNCERTAINTY (Continued):
Subsequent to the Company's year end of December 31, 1995, the landlord
of a facility being leased in Juarez, Mexico, filed suit against
Lafayette Products, S.A. de C.V. (Lafayette Mexico), requesting the
eviction of Lafayette Mexico due to non-payment of rent. In addition,
on March 14, 1996, the Court appointed an Intervener of Lafayette
Mexico to control and manage the production operations of Lafayette
Mexico. Subsequently, Lafayette Mexico and the landlord entered into an
agreement before the Court whereby Lafayette Mexico would pay the rent
owed plus judicial costs. In the case of non-payment of two or more
monthly rental payments in the future, the landlord could evict
Lafayette Mexico without further litigation. In May 1996, the Company
was ordered to vacate the premises due to non-payment of rent. Since
May, the Company has continued to operate its Mexican facility and has
remained on the premises.
In August 1996, the landlord of the Mexican facility filed a lien on
the equipment in the facility. The Company believes the lien is without
merit as Lafayette Mexico does not hold legal title to the property and
intends to appear before the court in opposition of the lien.
In view of the above matters, realization of a major portion of the
assets in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the
Company's ability to meet its financing requirements, and the success
of its future operations. Management believes that actions taken to
date, as well as actions presently being taken to revise the Company's
operating and financial requirements and to raise additional capital,
provide the opportunity for the Company to continue as a going concern.
On May 10, 1996, the Company signed a new agreement with the asset
based line of credit lender. Pursuant to the terms of the agreement and
in addition to several other terms and conditions, the Company agreed
to reduce the outstanding balance due under the credit facility to no
greater than $500,000, at which time the balance would become subject
to a term loan payable in 12 quarterly installments and bear interest
at a rate of prime plus 2% per annum. On May 10, 1996, the Company owed
to the lender approximately $1,800,000. The company made a payment of
$500,000 to the lender to make the agreement effective. The Company
subsequently reduced the amount due under the credit facility (see new
factoring agreement discussed below) to $500,000 and on August 8, 1996,
the Company entered into a Term Loan Agreement with the lender in
accordance with the above provisions. In accordance with the terms of
the May 10, 1996 agreement, the lender has released its security
interest in the Company's assets, however guarantees of certain
officers of the Company will remain in force until the entire amount
owed is paid in full.
On August 8, 1996, the Company entered into a one-year Factoring
Agreement with Business Alliance Capital Corp. The Agreement provides
for factoring of 80% of the Company's eligible accounts receivable,
subject to maximum borrowings of $1,000,000. The factoring charge shall
be 2% of the gross amount of each approved account that is outstanding
30 days or less, plus an additional 1% for each additional 15 days an
account is outstanding. The Company used a portion of the initial
proceeds under this agreement to reduce the borrowings with its
previous lender as described above.
7
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - GOING CONCERN UNCERTAINTY (Continued):
In addition, the Company has raised since March, 1996, approximately
$2,505,000 of capital through the sale of securities, including the
sale of convertible debentures which bear interest at a rate of 8% per
annum. $480,000 of these debentures are convertible to shares of common
stock at a price of $.50 per share. $160,000 of these debentures were
converted as of June 30, 1996 and the remaining balance of $320,000
were converted in July, 1996. $750,000 of additional debentures are
convertible at a conversion price per each share of common stock equal
to the lesser of $4 per share or 75% of the market value of the common
stock on the day immediately preceding the conversion date. Since June
30, 1996 the Company has sold an additional $275,000 of these
convertible debentures and $275,000 of the original issue of $750,000
were converted into 135,802 shares. See also Note 6 re: Equity
transactions.
NOTE 3 - ACQUISITION/DISCONTINUED OPERATIONS:
Effective June 1, 1994, the Company acquired all of the issued and
outstanding stock of two of its suppliers, Sunrise Display Fixtures,
Inc. ("Sunrise") and Ridgewood Displays, Inc. ("Ridgewood). The
$500,000 aggregate cost of these acquisitions, including goodwill of
$177,896, was paid for by utilizing a portion of the cash proceeds from
the Company's initial public offering which was completed in May 1994.
The acquisitions were accounted for using the purchase method of
accounting.
During the first quarter of 1996, the Company adopted a plan to sell
the operating assets subject to the assumption of certain liabilities
of Sunrise, Ridgewood, Wood Techniques and Enterprise Realty II "the
discontinued subsidiaries". The effective date of the sale is April 1,
1996. Sunrise and Ridgewood are selling assets of approximately
$633,000 subject to liabilities of approximately $578,000 to East End
Display Corp. Wood Techniques is selling assets approximating $682,000
subject to liabilities of $905,000 to AJK Associates, Inc. Enterprise
Realty II is selling land and a building with a book value of
approximately $1,587,000 subject to mortgage financing of approximately
$1,364,000, also to AJK Associates, Inc. It is expected that these
subsidiaries will still continue to supply merchandise to the Company
subsequent to the sales. Since April 1, 1996, the Company is operating
under the format that these transactions had occurred. To date,
however, the aforementioned sales have not been finalized.
Operating results of the discontinued subsidiaries for the nine and
three months ended September 30, 1996 are shown separately in the
accompanying statements of operations. The statement of operations for
the corresponding periods in 1995 have been restated and operating
results of the discontinued subsidiaries are also shown separately.
These subsidiaries manufactured product for ultimate sale by TDH. As
such, sales from these subsidiaries to TDH are not included in net
sales in the accompanying statements of operations since they were
eliminated in consolidation.
Net assets/liabilities of the discontinued subsidiaries have been
separately classified in the accompanying balance sheets at their net
realizable value.
8
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - FIXED ASSETS:
<TABLE>
<CAPTION>
Fixed assets consist of the following as of:
September 30 December 31
1996 1995
<S> <C> <C>
Machinery and equipment (i) $2,166,145 $2,063,375
Tools and dies 169,973 114,873
Leasehold improvements 335,214 335,214
Building and improvements (ii) 1,493,853 1,493,103
Furniture and fixtures 178,195 178,124
Assets held under capitalized leases 557,516 557,516
---------- ----------
4,900,896 4,742,205
Less: accumulated depreciation and amortization 382,320 271,882
---------- ----------
4,518,576 4,470,323
Add: land (ii) 845,000 845,000
---------- ----------
$5,363,576 $5,315,323
---------- ----------
<FN>
(i) Included in machinery and equipment is $111,000 of interest costs
which have been capitalized as part of the cost of the equipment which
was being readied for use at the Company's facility in Mexico.
(ii) This includes the real property located in Islandia, New York, owned
by Realty II (see discontinued operations - Note 3) and the real
property located in Brooklyn, New York, which is currently for sale.
Included in the cost of the building is $62,658 of interest costs
which were capitalized while the building in Islandia was being
prepared for its intended use.
</FN>
</TABLE>
NOTE 5 - OTHER ASSETS:
Other assets consisted of the following as of:
September 30 December 31
1996 1995
Organization costs 193,073 $449,240
Deferred financing costs 118,095 --
Deferred consulting fees -- 90,625
Security deposits and other assets 7,776 7,776
-------- --------
$318,944 $547,641
-------- --------
9
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - EQUITY TRANSACTIONS:
As of December 31, 1995, the Company had 2,532,500 shares of common
stock outstanding.
In connection with a consulting agreement entered into in March 1996,
the Company conveyed a common stock purchase warrant, for which the
consultant paid $13,000, which entitled the consultant to purchase
130,000 shares of the Company's common stock at a price of $2.625 per
share. In May 1996, the consultant exercised such warrant and purchased
130,000 shares of common stock which yielded the Company net proceeds
(after deducting issuance costs) of $307,125.
On April 17, 1996, the Company received $160,000 in exchange for two
8.5% promissory notes with a face value of $80,000 each. These notes
also gave the holders the right to acquire an aggregate of 160,000
shares of the Company's common stock at a price of $.25 per share,
which rights were exercised at the time of execution of the notes. In
June, 1996, the holders, in accordance with the provisions of the
notes, as amended, converted the principal amount of the notes to
320,000 shares of common stock.
In May, 1996, the Company issued 8.5% promissory notes in the aggregate
amount of $320,000, these notes being convertible to shares of the
Company's common stock at a price of $.50 per share. The holders of
these notes were also given the right to purchase an aggregate of
400,000 shares of the Company's common stock at a price of $.50 per
share, which rights were exercised prior to June 30, 1996. In July,
1996 the holders converted the $320,000 promissory notes to shares of
Lafayette's common stock at a price of $.50 per share.
In connection with the above equity transactions, the Company incurred
$60,000 in legal costs, which amount has been charged against
additional paid-in capital.
During the second quarter, 982,500 shares previously held in escrow,
which were not released, were returned to the Company and canceled.
As of September 30, 1996 the Company had sold an aggregate of
$1,025,000 in convertible debentures. These debentures bear interest at
8 % per annum and are convertible at a conversion price per each share
of common stock equal to the lesser of $4 per share or 75% of the
market value of the common stock on the day immediately preceding the
conversion date. In July, 1996, $275,000 of these debentures were
converted to 135,802 shares of common stock.
In August, 1996 2,000,000 shares of common stock were issued at $.25
per share.
NOTE 7 - EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share have been computed on the basis of the
weighted average number of common shares and common equivalent shares
outstanding during each period presented. All shares issued are being
treated as outstanding for all periods presented, except for shares
previously held in escrow which were not released, and which have been
returned to the Company and canceled.
Earnings per share has been retroactively restated for the cancellation
of the escrow shares for all periods presented.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
On January 16, 1992, TDH Group acquired substantially all of the assets
of a corporation in debtor-in-possession status, subject to certain
liabilities. Simultaneously, TDH Group contributed, as capital, the
assets and liabilities acquired, to TDH Lafayette Industries, Inc., a
New York corporation incorporated in January 1992 ("TDH Lafayette"). On
December 22, 1993, Lafayette Industries, Inc. (the "Company"), through
an exchange of stock with TDH Lafayette, accounted for as the
reorganization of entities under common control (similar to pooling of
interests), became the parent company of TDH Lafayette.
Lafayette Industries, Inc. and its subsidiaries (collectively,
"Lafayette" or the "Company") design, manufacture and sell customized
store fixtures and merchandising systems to retail stores. Store
fixtures include display racks, showcases and cabinets for merchandise
display. Lafayette sells large quantities of individual items designed
for a particular purpose as well as systems used to outfit entire
stores. The vast majority of the store fixtures sold by the Company are
made of metal. The Company has also expanded into manufacturing wood
store fixtures.
In the first quarter of 1996, the Company began plans to discontinue
three of its operating manufacturing subsidiaries (Sunrise, Ridgewood
and Wood Techniques) and one real estate subsidiary, Realty II.
Effective April 1, 1996, the Company intends to sell the assets subject
to certain liabilities of these subsidiaries to the individuals
currently managing these companies. The Company will continue to use
these entities to manufacture the products it sells on an arms length
transaction basis. The results of operations of the subsidiaries which
are to be disposed of are reflected separately on the statement of
operations as discontinued operations in accordance with Accounting
Principles Board Opinion (APB) No. 30.
The financial information presented herein includes: (i) balance sheets
as of September 30, 1996 and as of the year ended December 31, 1995;
(ii) statements of operations for the nine and three month periods ended
September 30, 1996 and 1995 and (iii) statements of cash flows for the
nine month periods ended September 30, 1996 and 1995.
Results of Operations
Net sales for the nine months ended September 30, 1996 aggregated
$5,681,429 as compared to the same period of the prior year of
$13,618,577, a decrease of $7,937,148 or 58%. Net sales for the three
months ended September 30, 1996 aggregated $1,054,589 as compared to
$5,840,080 for three months ended September 30, 1995, a decrease of
$4,785,491 or 82%. Management attributes these decreases to
uncertainties in the retail industry which resulted in the major
retailers holding back on buying the products offered by the Company. In
addition, due to the poor results achieved in the prior year and the
problems encountered with it's primary funding source (see Note 2 of
Notes to the Financial Statements), the Company did not always have the
funds necessary to manufacture product for sale during the current
fiscal year.
During the nine month period ended September 30, 1995, the Company
reflected a gross profit percentage of approximately 29% as compared to
a gross profit percentage of 27% for the nine month period ended
September 30, 1996. The Company, during the quarter ended March 31, 1996
was selling product it had on hand at virtually no profit, in order to
generate cash to pay expenses, as such this deflated the gross profit
earned for the nine month period ended September 30, 1996, as compared
to the prior year. During the quarters ended September 30, 1995 and
1996, the Company's gross profit percentage was 27% and 24%
respectively.
11
<PAGE>
Operating expenses decreased from approximately $3,211,000 for the nine
month period ended September 30, 1995 to approximately $3,180,000 for
the nine month period ended September 30, 1996 a decrease of $31,000.
Operating expenses decreased by approximately $429,000 when comparing
the three month period ended September 30, 1995 to the same period of
the current year. These decreases were caused by trimming of overhead
expenses during the third quarter of 1996.
Interest expense decreased by $53,000 for the nine month period ended
September 30, 1996 as compared to the nine month period ended September
30, 1995 as a result of decreased average borrowings. Interest expenses
decreased by $73,000 when comparing the three month periods ended
September 30, 1995 and 1996.
The Company reflected a loss from continuing operations of $1,830,473
(or $.51 per share) for the nine month period ended September 30, 1996
as compared to income from continuing operations of $792,423 (or $.34
per share) for the comparative period of the prior year. The loss from
continuing operations for the quarter ended September 30, 1996 was
$557,900 ($.14 per share) as compared to income from continuing
operations for the three months ended September 30, 1995 of $385,993
($.15 per share). The principal reason for the significant loss in the
current period was the reduction in sales and gross profit as described
above.
The Company reflected net income of $845,615 ($.27 per share) for the
nine months ended September 30, 1995. During the nine months ended
September 30, 1996, the Company reflected a net loss of $2,192,736 ($.61
per share). Net income for the three month period ended September 30,
1995 was $473,168 ($.27 per share) as compared to a net loss of $521,878
($.13 per share) for the same period of the current year.
Liquidity and Capital Resources
At the year ended December 31, 1995 the Company reflected negative
working capital (current liabilities in excess of current assets) of
$2,558,542. At September 30, 1996, the Company reflected negative
working capital of $2,122,770.
On February 29, 1996 the finance company that was providing the Company
with a $5,000,000 asset based line of credit, suspended making advances
because the Company submitted accounts receivable which were in
violation of the terms of the financing agreement. At the time, the
Company owed approximately $2,800,000 to the finance company.
In April 1996, the bank which had provided the Company with mortgages
aggregating $1,350,000 for the building it acquired in Islandia, New
York, notified the Company that it was in both technical and monetary
default of the agreements and made a demand for full payment of
principal and accrued interest.
In addition, in April 1996, another bank which in January 1996 provided
mortgage financing aggregating $675,000 for a building acquired in
Brooklyn, New York, notified the Company that they were accelerating the
full balance of the notes due to non-payment and that they required full
payment of all principal, accrued interest, late charges and attorneys
fees.
During the quarter ended March 31, 1996, the Company was notified by a
finance company which provided equipment financing that it was in
default of the agreement due to non-payment. At September 30, 1996 the
Company owed $255,000 on this financing.
12
<PAGE>
During the quarter ended March 31, 1996, the landlord of the facility
being leased in Juarez, Mexico, filed a suit against Lafayette Products,
S.A. de C.V. (Lafayette Mexico) requesting the eviction of Lafayette
Mexico due to non-payment of rent. In addition, on March 14, 1996, the
Court appointed an Intervener of Lafayette Mexico to control and manage
the production operations of Lafayette Mexico. Subsequently, Lafayette
Mexico and the landlord entered into an agreement before the Court
whereby Lafayette Mexico would pay the rent owed plus judicial costs. In
the future and in the case of non-payment of two or more monthly rental
payments, the landlord could evict Lafayette Mexico without further
litigation. In May 1996, Lafayette Mexico was ordered to vacate the
premises due to nonpayment of rent. Since May, Lafayette Mexico has
continued to operate its facility in Mexico and has remained on the
premises.
In August 1996, the landlord of the Mexican facility filed a lien on the
equipment in the facility. The Company believes the lien is without
merit as Lafayette Mexico does not hold legal title to the property and
intends to appear before the court in opposition of the lien.
As a result of the aforementioned items the Company's auditors included
a going concern qualification in the audit report for the year ended
December 31, 1995. This qualification states that the financial
statements by their nature assume that the Company will continue as a
going concern but that the significance of the above items raise doubt
that this is so. In addition, generally accepted accounting principles
require the Company to state management's plans to ensure that the
Company will be able to continue a going concern.
Management's Plans
On May 10, 1996, the Company signed a new agreement with the asset based
line of credit lender. Pursuant to the terms of the agreement and in
addition to several other terms and conditions, the Company agreed to
reduce the outstanding balance due under the credit facility to no
greater than $500,000, at which time the balance would become subject to
a term loan payable in 12 quarterly installments and bear interest at a
rate of prime plus 2% per annum. On May 10, 1996, the Company owed the
lender approximately $1,800,000. The Company made a payment of $500,000
to the lender to make the agreement effective. The Company subsequently
reduced the amount due under the facility to $500,000 and on August 8,
1996, the Company entered into a Term Loan Agreement with the lender in
accordance with the above provisions. In accordance with the terms of
the May 10, 1996 agreement, the lender has released its security
interest in the Company's assets, however guarantees of certain officers
of the Company will remain in force until the entire amount owed is paid
in full.
On August 8, 1996, the Company entered into a one-year Factoring
Agreement with Business Alliance Capital Corp. The Agreement provides
for factoring of 80% of the Company's eligible accounts receivable,
subject to maximum borrowings of $1,000,000. The factoring charge shall
be 2% of the gross amount of each approved account that is outstanding
30 days or less, plus an additional 1% for each additional 15 days an
account is outstanding. The Company used a portion of the initial
proceeds under this agreement to reduce the borrowings with its previous
lender as described above.
In addition, the Company has raised since March, 1996, approximately
$2,505,000 of capital through the sale of securities, including the sale
of convertible debentures which bear interest at a rate of 8% per annum.
$480,000 of these debentures are convertible to shares of common stock
at a price of $.50 per share. $160,000 of these debentures were
converted as of June 30, 1996 and the remaining balance of $320,000 were
converted in July, 1996. $750,000 of additional debentures are
convertible at a conversion price per each share of common stock equal
to the lesser of $4 per share or 75% of the market value of the common
stock on the day immediately preceding the conversion date. Since June
30, 1996 the Company has sold an additional $275,000 of these
convertible debentures and $275,000 of the original issue of $750,000
were converted into 135,802 shares.
13
<PAGE>
As mentioned above, the Company has decided to restructure its'
operations and sell three of its' manufacturing subsidiaries and one
realty subsidiary to the current management of these subsidiaries, to be
effective April 1, 1996. In connection with the restructuring, certain
individuals resigned as officers of the Company, including Robert
Jessen, Lucienne Jessen, Joseph Milkowski and Lloyd Robinson. However,
Mr. Jessen, Mrs. Jessen and Mr. Robinson continue to be employees of the
Company.
The Company will sell substantially all of the assets ($682,000) subject
to certain liabilities ($905,000) of its' Wood Techniques subsidiary to
AJK Associates, Inc. In addition, the Company intends to sell the land
and building in Islandia, New York (with a book value of approximately
$1,587,000) to AJK who will also assume the mortgages payable which
approximate $1,364,000.
The Company will sell substantially all the assets (approximately
$633,000), subject to certain liabilities (approximately $578,000) of
both its' Ridgewood and Sunrise subsidiaries to East End Display Corp.
The planned impact of these sales, which to date have not been
finalized, is both to reduce debt and to reduce operating costs and
working capital requirements by having approximately 50% of the
manufacturing of product available for sale done by outside vendors.
The Company has sold one of its' two buildings in Brooklyn, New York and
has placed the other building up for sale. The ultimate goal of these
sales is to use the proceeds therefrom to satisfy the outstanding
mortgage obligation.
The Company is in negotiations with the landlord of the facility in
Mexico and hopes to resolve the matter shortly.
Other Items
The Company intended to acquire approximately $1,000,000 of equipment
for its' chrome plating line in Mexico. Management has decided that it
can operate without the chrome plating line and therefore these
previously planned capital expenditures will not be needed.
In order for the Company to continue as a going concern, they will have
to achieve positive cash flow from operations, reduce or restructure
outstanding debt and/or raise additional equity capital. As mentioned
above, plans for each of these items are currently being worked on by
Company management.
Inflationary Impact
Since the inception of operations, inflation has not significantly
affected the operating results of the Company, However, in past years
inflation and changing interest rates have had a significant effect on
the economy in general and therefore could affect the operating results
of the Company in the future.
14
<PAGE>
PART II: OTHER INFORMATION
ITEM 1. Legal Proceedings:
During the quarter ended March 31, 1996, the landlord of the facility
being leased in Juarez, Mexico, filed a suit in Mexican court against
Lafayette Products, S.A. de C.V. (Lafayette Mexico), requesting the
eviction of Lafayette Mexico due to non-payment of rent for October,
November and December 1995. On March 14, 1996, the Court appointed an
Intervener of Lafayette Mexico to control and manage the production
operations of the Company. Subsequently, Lafayette Mexico and the
landlord entered into an agreement before the Court whereby Lafayette
would pay the rent owed plus judicial costs. In the future and in the
case of non-payment of two or more monthly rental payments, the landlord
could evict Lafayette without further litigation.
In May 1996, Lafayette Mexico was ordered to vacate the premises. Since
May, the Company has continued to operate its facility in Mexico and has
remained on the premises.
In August 1996, the landlord of the Mexican facility filed a lien on the
equipment in the facility. The Company believes the lien is without
merit as Lafayette Mexico does not hold legal title to the property and
intends to appear before the Court in opposition of the lien.
ITEM 2. Change in Securities:
None
ITEM 3. Defaults upon Senior Securities:
None
ITEM 4. Submission of Matters to a Vote of Security Holders:
None
ITEM 5. Other Information:
None
ITEM 6. Exhibits and Reports:
(a) Exhibits:
(11) Computation of Earnings per Common Share
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAFAYETTE INDUSTRIES, INC.
-----------------------------------------
Registrant
Date: November 14, 1996 /s/Colin Halpern
-----------------------------------------
Colin Halpern, Vice President
16
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PRIMARY EARNINGS:
Earnings (loss) from continuing operations $(1,830,473) $ 524,958 $ (557,900) $ 241,709
Earnings (loss) from discontinued operations (362,263 320,657 36,022 195,459
----------- ----------- ----------- -----------
$(2,192,736) $ 845,615 $ (521,878) $ 437,168
----------- ----------- ----------- -----------
SHARES:
Weighted average number of common shares
outstanding 3,593,571 2,178,288 3,862,143 2,532,500
Weighted average number of common shares
treated as held in escrow and canceled
subsequent to March 31, 1996 -- (982,500) -- (982,500)
Assuming conversion of stock options and warrants -- 327,289 -- 109,273
----------- ----------- ----------- -----------
3,593,571 1,523,077 3,862,143 1,659,273
----------- ----------- ----------- -----------
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ (.51) $ .34 $ (.14) $ .15
Discontinued operations (.10) .21 .01 .12
----------- ----------- ----------- -----------
$ (.61) $ .55 $ (.13) $ .27
----------- ----------- ----------- -----------
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated condensed financial statements for the nine months ended
September 30, 1996 and is qualified in its entirety by reference to such
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 69,910
<SECURITIES> 0
<RECEIVABLES> 1,522,609
<ALLOWANCES> 20,000
<INVENTORY> 866,395
<CURRENT-ASSETS> 3,786,744
<PP&E> 5,745,896
<DEPRECIATION> 382,320
<TOTAL-ASSETS> 9,469,264
<CURRENT-LIABILITIES> 5,909,514
<BONDS> 0
53,358
0
<COMMON> 0
<OTHER-SE> 2,423,059
<TOTAL-LIABILITY-AND-EQUITY> 9,469,264
<SALES> 5,681,429
<TOTAL-REVENUES> 5,681,429
<CGS> 4,166,490
<TOTAL-COSTS> 4,166,490
<OTHER-EXPENSES> 3,179,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180,301
<INCOME-PRETAX> (1,830,473)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,830,473)
<DISCONTINUED> (362,263)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,192,736)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
