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 June 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 July 24, 1996 there were
outstanding 3,387,802 shares of the Registrant's Common Stock, $.01 par value.
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page(s)
PART I. Financial Information
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets - June 30, 1996
(Unaudited) and December 31, 1995 3.
Consolidated Condensed Statements of Operations - Six and
Three Months Ended June 30, 1996 and 1995 (Unaudited) 4.
Consolidated Condensed Statements of Cash Flows - Six
Months Ended June 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 12.
PART II. Other Information 17.
SIGNATURES 18.
EXHIBITS:
Exhibit 10.1 - Letter agreement dated August 8, 1966,
with Rosenthal & Rosenthal, Inc. regarding term note
Exhibit 10.2 - Factoring agreement dated August 8, 1996,
with Business Alliance Capital Corp.
Exhibit 11 - Computation of Earnings Per Common Share
Exhibit 27 - Financial Data Schedule
2
<PAGE>
PART I. Financial Information
ITEM 1. Financial Statements
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited)
- ASSETS -
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 43,921 $ 42,283
Accounts receivable - net of allowance for doubtful accounts of
$80,007 and $99,268, respectively 1,394,226 2,405,976
Inventories 766,395 743,937
Due from affiliate 50,337 50,337
Due from officers 104,610 104,610
Prepaid expenses and other current assets 283,161 143,895
Refundable income taxes 349,664 349,664
Due from supplier 356,684 330,714
Net assets of discontinued subsidiaries (Note 3) -- 130,060
------------ ------------
TOTAL CURRENT ASSETS 3,348,998 4,301,476
FIXED ASSETS (Note 4) 5,381,679 5,315,323
OTHER ASSETS (Note 5) 416,053 547,641
------------ ------------
$ 9,146,730 $ 10,164,440
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Note payable - finance company (Note 2) $ 698,653 $ 2,852,989
Promissory notes payable (Notes 2 and 6) 320,000 --
Accounts payable and accrued expenses 2,380,491 2,220,523
Due to related party 114,350 37,000
Mortgages payable (Note 2) 2,078,718 1,353,718
Current portion of long-term debt (Note 2) 255,000 255,000
Capitalized lease obligations - current portion 148,959 140,788
Net liabilities of discontinued subsidiaries (Note 3) 38,170 --
------------ ------------
TOTAL CURRENT LIABILITIES 6,034,341 6,860,018
------------ ------------
LONG-TERM LIABILITIES:
Capitalized lease obligations 459,116 390,414
Convertible debentures (Notes 2 and 6) 750,000 --
------------ ------------
1,209,116 390,414
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 3)
SHAREHOLDERS' EQUITY (Note 6):
Common stock, $.01 par value; 20,000,000 shares authorized, 2,560,000 shares
(June 30, 1996) and 2,532,500 shares issued and outstanding, (including
982,500 shares placed in escrow) as of December 31, 1995, respectively 25,600 25,325
Additional paid-in capital 4,908,890 4,249,040
Retained earnings (deficit) (3,019,445) (1,348,585)
Foreign currency translation (11,772) (11,772)
------------ ------------
1,903,273 2,914,008
------------ ------------
$ 9,146,730 $ 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>
For the Six Months Ended For the Three Months Ended
June 30, June 30,
1996 1995 1996 1995
(As restated- (As restated -
see Note 3) see Note 3)
<S> <C> <C> <C> <C>
NET SALES $ 4,626,860 $ 7,778,497 $ 2,639,333 $ 4,048,935
COST OF GOODS SOLD 3,368,862 5,327,301 1,401,542 2,846,982
----------- ----------- ----------- -----------
GROSS PROFIT 1,257,998 2,451,196 1,237,791 1,201,953
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling expenses 482,297 671,844 188,987 324,925
General and administrative expenses 1,911,176 1,323,281 1,017,795 737,512
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,393,473 1,995,125 1,206,782 1,062,437
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (1,135,475) 456,071 31,009 139,516
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense (154,909) (134,626) (61,374) (75,206)
Interest and other income 17,809 162,985 14,473 159,985
----------- ----------- ----------- -----------
(137,100) 28,359 (46,901) 84,779
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (1,272,575) 484,430 (15,892) 224,295
Provision (credit) for income taxes -- 201,181 -- 82,168
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (1,272,575) 283,249 (15,892) 142,127
Income (loss) from operations of discontinued
subsidiaries - net of income taxes (Note 3) (398,285) 125,198 25,126 78,703
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,670,860) $ 408,447 $ 9,234 $ 220,830
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON
SHARE (Note 7):
Continuing operations $ (.70) $ .21 $ (.01) $ .11
Discontinued operations (.22) .10 .01 .06
----------- ----------- ----------- -----------
$ (.92) $ .31 $ .00 $ .17
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(Note 7) 1,818,571 1,314,859 2,087,143 1,287,363
=========== =========== =========== ===========
</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
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,670,860) $ 408,447
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 345,140 106,026
Consulting fees 9,375 7,500
Provision for losses on accounts receivable -- 15,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 980,362 (696,253)
(Increase) in inventories (71,526) (880,767)
(Increase) in prepaid expenses and other current assets (36,568) (220,754)
Decrease in security deposits and other assets 4,500 10,408
Increase in accounts payable, accrued expenses 306,724 1,374,551
Increase in due to related party 62,242 --
(Decrease) in income taxes payable -- (107,426)
----------- -----------
Net cash (used) provided by operating activities (70,611) 16,732
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (28,472) (2,091,215)
Organization costs (30,087) (772,558)
Loans and advances to officer -- (21,018)
----------- -----------
Net cash (used) by investing activities (58,559) (2,884,791)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) proceeds from notes payable (2,131,535) 2,057,367
Repayment of capitalized leases (74,687) (17,562)
Repayment of loans payable -- (14,250)
Proceeds from mortgage and equipment financing 725,000 --
Financing costs (118,095) --
Proceeds from issuance of promissory notes and convertible debentures 1,070,000 --
Net proceeds from sale of common stock 660,125 600,000
----------- -----------
Net cash provided by financing activities 130,808 2,625,555
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,638 (242,504)
Cash and cash equivalents, at beginning of year 42,283 295,795
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 43,921 $ 53,291
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest - net of amounts capitalized $ 80,909 $ 147,237
Taxes -- 369,789
</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 June
30, 1996 and the results of its operations for the six and three month
periods ended June 30, 1996 and 1995 and its cash flows for the six
month periods ended June 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"), Sunrise Display
Fixtures, Inc. ("Sunrise"), Ridgewood Displays, Inc. ("Ridgewood"),
Sun Belt Fixtures, Inc. ("Sun Belt"), Wood Techniques, Inc. ("Wood
Techniques"), Lafayette Products, S.A. de C.V. ("Lafayette Mexico")
and Enterprise Realty II, ("Realty II"). 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 six and three month periods ended
June 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, losses for the current six month period ended June
30, 1996 of $1,671,000 and has used substantial amounts of working
capital in its operations. At June 30, 1996, the Company reflected
negative working capital of $2,685,343. 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
6
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - GOING CONCERN UNCERTAINTY (Continued):
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.
Subsequent to the Company's year end of December 31, 1995, the
landlord of a 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. 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 Mexico would pay
the rent owed plus judicial costs and 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 a Final Judgment
issued by the Court in May 1996, the Company was ordered to vacate the
premises due to non-payment of rent. Notwithstanding the above, 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.
7
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 - GOING CONCERN UNCERTAINTY (Continued):
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 approximately $1,730,000 of
capital through the sale of securities, including the sale of
convertible debentures which bear interest at a rate of 8 1/2% 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, subsequent to the
balance sheet date. $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.
See also Note 6 re: Equity transactions.
NOTE 3 - ACQUISITIONS/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 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.
8
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - ACQUISITIONS/DISCONTINUED OPERATIONS (Continued):
Operating results of the discontinued subsidiaries for the six and
three months ended June 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.
NOTE 4 - FIXED ASSETS:
Fixed assets consist of the following as of:
<TABLE>
<CAPTION>
June 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 178,124 178,124
Assets held under capitalized leases 557,516 557,516
---------- ----------
4,900,825 4,742,205
Less: accumulated depreciation and amortization 364,146 271,882
---------- ----------
4,536,679 4,470,323
Add: land (ii) 845,000 845,000
---------- ----------
$5,381,679 $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 building is $62,658 of interest costs which
were capitalized while the building in Islandia was being prepared for
its intended use.
</FN>
</TABLE>
9
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - OTHER ASSETS:
Other assets consisted of the following as of:
June 30, December 31,
1996 1995
Organization costs $290,182 $449,240
Deferred financing costs 118,095 --
Deferred consulting fees -- 90,625
Security deposits and other assets 7,776 7,776
-------- --------
$416,053 $547,641
======== ========
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 provision 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. Subsequent
to June 30, 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.
10
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 - EQUITY TRANSACTIONS (Continued):
During the current period, 982,500 shares previously held in escrow,
which were not released, were returned to the Company and canceled.
As of June 30, 1996 the Company had sold an aggregate of $750,000 in
convertible debentures. These debentures bear interest at 8 1/2% 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. Since June 30, 1996 the Company sold an additional
$275,000 of these convertible debentures.
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.
11
<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 a 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 June 30, 1996 and as of the year ended December 31, 1995;
(ii) statements of operations for the six and three month periods
ended June 30, 1996 and 1995 and (iii) statements of cash flows for
the six month periods ended June 30, 1996 and 1995.
Results of Operations
Net sales for the six months ended June 30, 1996 aggregated $4,626,860
as compared to the same period of the prior year of $7,778,497, a
decrease of $3,151,637 or 41%. Net sales for the three months ended
June 30, 1996 aggregated $2,639,333 as compared to $4,048,935 for the
three months ended June 30, 1995, a decrease of $1,409,602 or 35%.
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.
12
<PAGE>
During the six month period ended June 30, 1995, the Company reflected
a gross profit percentage of approximately 32% as compared to a gross
profit percentage of 27% for the six month period ended June 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 six month period ended June 30, 1996, as compared to the prior
year. During the quarters ended June 30, 1995 and 1996, the Company's
gross profit percentage increased from 30% to 47%, respectively
primarily due to specialized work done by the Mexican subsidiary at a
much higher gross profit percentage than normal.
Operating expenses increased from approximately $1,995,000 for the six
month period ended June 30, 1995 to approximately $2,393,000 for the
six month period ended June 30, 1996 an increase of $398,000.
Operating expenses increased by $145,000 when comparing the three
month period ended June 30, 1995 to the same period of the current
year. These increases were primarily caused by salary expenses at the
Company's new manufacturing facility in Mexico and the professional
costs necessary to negotiate the change in financing as described
below.
Interest expense increased by $20,000 for the six month period ended
June 30, 1996 as compared to the six month period ended June 30, 1995
as a result of increased average borrowings. Interest expenses
decreased by $14,000 when comparing the three month periods ended June
30, 1995 and 1996.
The Company reflected a loss from continuing operations of $1,272,575
(or $.70 per share) for the six month period ended June 30, 1996 as
compared to income from continuing operations of $283,249 (or $.21 per
share) for the comparative period of the prior year. The loss from
continuing operations for the quarter ended June 30, 1996 was $15,892
($.01 per share) as compared to income from continuing operations for
the three months ended June 30, 1995 of $142,127 ($.11 per share). The
principal reason for the significant loss in the current period was
the reduction in sales and gross profit dollars as described above.
The Company reflected net income of $408,447 ($.31 per share) for the
six months ended June 30, 1995. During the six months ended June 30,
1996, the Company reflected a net loss of $1,670,860 ($.92 per share).
Net income for the three month period ended June 30, 1995 was $220,830
($.17 per share) as compared to $9,234 ($.00 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 June 30, 1996, the Company reflected negative working
capital of $2,685,343.
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.
13
<PAGE>
In addition, in April 1996, another bank which in January 1996
provided mortgage financing aggregating $675,000 for two buildings
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 had provided equipment financing that it was in
default of the agreement due to non-payment. At June 30, 1996, the
Company owed $255,000 on this financing.
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. 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 Mexico would pay the rent owed plus judicial
costs and 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 a Final Judgment issued by the Court in
May 1996, the Company was ordered to vacate the premises due to
non-payment of rent. Notwithstanding the above, 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.
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 as 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 credit 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
14
<PAGE>
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 approximately $1,730,000 of capital through the
sale of securities, including the sale of convertible debentures which
bear interest at a rate of 8 1/2% 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, subsequent to the balance sheet date. $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.
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 placed both buildings it presently owns in Brooklyn,
New York up for sale. The ultimate goal of this sale is to use the
proceeds therefrom to satisfy the outstanding mortgage obligations.
The Company is in negotiations with the landlord of the facility in
Mexico and hopes to resolve the matter shortly.
During 1996 the Company will attempt to obtain equipment financing for
various equipment already purchased during 1995 for approximately
$1,150,000 in cash. If successful, the Company will utilize these
funds for working capital purposes.
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
addition, the Company needs approximately $250,000 to complete the
acquisition of the Sunbelt subsidiary. Management of the Company is
seeking financing for each of these items but there is no assurance
that they will be successful.
15
<PAGE>
In order for the Company to continue as a going concern they will have
to achieve positive cash flow from operations, obtain new financing,
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.
16
<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 the 7th Civil Court,
Juarez, Mexico 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 Mexico would pay the rent
owed plus judicial costs and 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 the Final Judgment
issued by the Court in May 1966, the Company was ordered to vacate the
premises due to non-payment of rent. Notwithstanding the above, 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. Changes 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:
(10.1) Letter agreement, dated August 8, 1996, with Rosenthal &
Rosenthal Inc. regarding term note
(10.2) Factoring agreement, dated August 8, 1996, with Business
Alliance Capital Corp.
(11) Computation of Earnings per Common Share
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
17
<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: September 5, 1996 /s/ Colin Halpern
-----------------
Colin Halpern, on behalf of Registrant
Date: September 5, 1996 /s/ Colin Halpern
-----------------
Colin Halpern, Executive Vice President
(Principal Accounting Officer)
August 8, 1996
Rosenthal & Rosenthal, Inc.
1370 Broadway
New York, New York 10017
The undersigned (and each, if more than one) refers to (i) his or her
guaranty and related documents set forth on Schedule A annexed hereto
(collectively, the "Individual Guarantees") in favor of Rosenthal & Rosenthal,
Inc. ("Rosenthal") in connection with TDH Lafayette Industries, Inc. and its
affiliates (collectively, the "Companies"), (ii) the letter agreement dated May
10, 1996 between Rosenthal and the Companies which provides, inter alia, that
upon the unpaid balance of all Obligations of the Companies to Rosenthal being
reduced to $500,000 or less (the "Balance"), the Companies would execute and
deliver to Rosenthal a Term Note (the "Term Note") in the principal amount of
the Balance, subject to Rosenthal having received, in form and substance
satisfactory to it, individual guarantees substantially in the form of the
Individual Guarantees, and (iii) the action by Rosenthal against each of the
undersigned presently pending in the Supreme Court of the State of New York,
County of New York (the "Action"). Capitalized terms used but not defined herein
shall have the meanings set forth in the Guaranty Documents.
In consideration of all loans and other financial accommodations
heretofore advanced or provided by Rosenthal to the Companies, and in order to
induce Rosenthal to accept the Term Note and to discontinue the Action without
prejudice, and in lieu of providing new guaranty documents, the undersigned (and
each, if more than one) agree as follows:
1. The term "Obligations" as used in the Individual Guarantees shall
mean and refer to all indebtedness, liabilities and obligations of the Companies
under the Term Note;
2. The Obligations (as defined above) shall be conclusively deemed (i)
legal, valid, binding and fully enforceable Obligations of each of the Companies
to Rosenthal, (ii) owing to Rosenthal pursuant to the terms of the Term Note
without offset, defense or counterclaim. The undersigned waive and shall not in
any action upon the Individual Guarantees assert, any defense based upon any
claimed illegality, invalidity or unenforceability of the Obligations or the
alleged availability of any offset or counterclaim.
3. The waivers and consents set forth in the Individual Guarantees are
fully applicable to the Individual Guarantees as modified hereby, and without
limitation of such waivers and consents, shall apply to all matters relating to
the Term Note and the several Individual Guarantees of each of the undersigned.
4. The addresses set forth below under the signatures of the
undersigned are the correct residence addresses of each of the undersigned.
<PAGE>
5. Except as modified hereby, the Individual Guarantees and all terms
and provisions thereof shall remain in full force and effect in accordance with
their respective terms. This letter agreement may be executed in one or more
counterparts, which shall be binding upon the undersigned executing this letter
agreement. Copies hereof, executed by Rosenthal shall be delivered to counsel to
the Companies.
/s/ Robert Jessen
---------------------
Robert Jessen
Address: 223-21 57th Avenue
Bayside, NY 11364
/s/ Lucienne Jessen
---------------------
Lucienne Jessen
Address: 223-21 57th Avenue
Bayside, NY 11364
/s/ Colin Halpern
---------------------
Colin Halpern
Address: 16 Woodland Road
New City NY 10956
/s/ Gail Halpern
---------------------
Gail Halpern
Address: 16 Woodland Road
New City NY 10956
/s/ Nancy Gillon
---------------------
Nancy Gillon
Address: 87 Stewart Street
Demarest, NJ 07627
AGREED:
ROSENTHAL & ROSENTHAL, INC.
By:
-------------------------------
Title: Sr. Vice President
2
<PAGE>
Schedule A
Guarantees, each dated March 5, 1996, by Robert Jessen, in favor of
Rosenthal, with respect to TDH Lafayette Industries, Inc. ("TDH"), Sunrise
Displays, Inc. ("Sunrise"), Wood Techniques, Inc. ("WTI"), Sunbelt Fixtures,
Inc. ("Sunbelt") and Ridgewood Displays, Inc. ("Ridgewood").
Guarantees, each dated March 5, 1996, by Lucienne Jessen, in favor of
Rosenthal, with respect to TDH, Sunrise WTI, Sunbelt, and Ridgewood; the two
letters dated March 8, 1996, the Pledge Agreement dated March 5, 1996, the
letter dated March 12, 1996 and the Rosenthal letter to Woodland Limited
Partnership dated March 8, 1996.
Guarantee and Waiver dated March 2, 1992 by Colin Halpern, in favor of
Rosenthal, with respect to TDH.
Guarantee and Waiver dated March 2, 1992, by Gail Halpern, in favor of
Rosenthal with respect to TDH.
Guarantee and Waiver dated March 11, 1992 by Nancy Gillon, in favor of
Rosenthal with respect to TDH.
<PAGE>
I, Steven Troup, certify that the signatures of Robert Jessen, Lucienne Jessen
and Gail Halpern, contained on the annexed letter agreement dated August 8, 1996
with Rosenthal & Rosenthal, Inc. are the true and correct signatures of Robert
Jessen, Lucienne Jessen, and Gail Halpern, and such persons did in fact sign the
annexed document.
Signed: /s/ Steven Troup Date: August 8, 1996
FACTORING AGREEMENT
BUSINESS ALLIANCE CAPITAL CORP.
300 Alexander Park
Princeton, New Jersey 08543
Gentlemen:
We propose the following agreement with you, effective as of August 8, 1996
wherein we agree to retain you as our sole factor in accordance with the terms,
provisions and conditions as hereinafter stated:
1. The undersigned hereby sells, assigns, transfers and sets over to you as
absolute owner and you hereby agree to purchase from the undersigned, all
Receivables now or hereafter owned by us which are acceptable to you ("Approved
Accounts"). The term "Receivables" means and includes all accounts receivable,
notes, bills, acceptances and any and all other forms of obligations owing to
us, whether secured or unsecured, all proceeds thereof and all of our rights to
any merchandise which is represented thereby (delivered or undelivered),
including all of our rights of stoppage in transit, replevin and reclamation as
an unpaid vendor or lienor. You shall be entitled to exercise all of the rights
and remedies of the seller of such goods and shall be and become subrogated to
all guaranties, collateral and other rights possessed by us or due to come into
our hands, but you shall not be liable in any manner for exercising or refusing
to exercise any rights thereby bestowed. From time to time we shall provide you
with schedules describing all Receivables created or acquired by us and shall
execute and deliver to you at your offices in Princeton, New Jersey written
assignments of such Receivables to you and shall furnish at the same time copies
of customers' invoices or the equivalent, together with original shipping or
delivery receipts for all merchandise sold and/or all notes, bills, acceptances
or other evidences of customer indebtedness duly endorsed in blank by us, and
any other information or documents you may call upon us from time to time to
submit, all in form satisfactory to you.
2. Your factoring charge shall be two percent (2%) of the gross amount of
each Approved Account outstanding thirty (30) days or less plus an additional
one percent (1%) for each additional fifteen (15) days outstanding; but in no
event shall your factoring charge on any invoice evidencing a Receivable
purchased hereunder be less than five dollars. The purchase price of Receivables
accepted by you is to be the net face amount thereof less your factoring charge.
The purchase price shall be due and payable four (4) days after the date of your
receipt of payment in full of the Approved Account. The term "net face amount"
means the gross amount of Receivables, less trade and cash discounts to
customers (which shall be computed on the shortest terms where optional terms
are given) and credits and allowances to customers of any nature. After purchase
of Receivables by you, a discount, credit or allowance may be claimed solely by
the customer and the undersigned will not issue or grant any discounts; credits
or allowances to a customer without your prior consent. You will credit to our
account said purchase price when due as set forth above, less any moneys
remitted, paid or otherwise advanced by you for our account and less returns,
trade and cash
<PAGE>
discounts, credits or allowances of any nature at any time issued, owed, granted
or outstanding, upon the respective collection of such Receivables. You shall be
entitled to hold all sums and all property of the undersigned at any time to our
credit in your possession, or upon or in which you have a lien or security
interest, as security for all our Obligations at any time owing to you. Such
obligations shall include, without limitation, all obligations to you hereunder
and all obligations to you whether under this agreement or otherwise, no matter
how or when arising and whether due or to become due (the "Obligations"), and
you shall have the right to charge to our account the amount of all such
Obligations. Recourse to security shall not at any time be required, and we
shall at all times remain liable to you for all loans and Advances to or for our
account and for all our other Obligations to you. The minimum aggregate face
amount of Receivables to be offered by us for purchase by you shall be Seven
Million Five Hundred Thousand Dollars ($7,500,000) during the initial term
hereof; and we shall be liable to you for factoring commissions on any
deficiency amount. If any Approved Account is not paid on or before ninety (90)
days from the invoice date, or if there exists any breach of any of our
representations, warranties under this Agreement or any other document with
respect to any Approved Account or if any Approved Account ceases to be an
Eligible Account, we shall immediately repurchase from you such Approved Account
for an amount equal to the unpaid balance of such Approved Account, or at your
option, sell and assign to you a substitute Approved Account of at least equal
or greater value.
3. A. Advances; Advance Limit. Upon our request made at any time or from
time to time during the term hereof and so long as no Event of Default has
occurred and is continuing, you may, in your sole and absolute discretion, make
Advances (the "Advances") against the Purchase Price prior to the date payment
of the Purchase Price is due as set forth above. Such Advances may be in an
amount up to eighty percent (80%) of the unpaid Purchase Price; provided,
however, that in no event shall the aggregate amount of the outstanding Advances
to the undersigned and to Lafayette Products, Inc in the aggregate be greater,
at any time, than the sum of One Million Dollars ($1,000,000) (the "Advance
Limit"). All Advances shall be credited to our account with you.
B. [INTENTIONALLY OMITTED]
C. [INTENTIONALLY OMITTED]
D. It is not the intention of the parties hereto to make an agreement
which violates any applicable state or federal usury laws. In no event shall we
pay or you accept or charge any interest which, together with any other charges
upon the principal or any portion thereof, exceeds the maximum lawful rate of
interest allowable under any applicable state or federal usury laws. Should any
provision of this Agreement or any existing or future document be construed to
require the payment of interest which, together with any other charges upon the
principal or any portion thereof, exceeds the maximum lawful rate of interest,
then any such excess shall be applied to the remaining principal balance of the
Obligations, if any, and the remainder refunded to you.
E. Eligible Accounts means those Receivables created by us in the
ordinary course of business, which are and at all times shall continue to be
acceptable to you in all respects; provided, however, that standards of
eligibility may be fixed and revised from time to time by you in your exclusive
judgment. In determining such acceptability and
-2-
<PAGE>
standards of eligibility, you may, but need not, rely on agings, reports and
schedules of Receivables furnished by us, but reliance by you thereon from time
to time shall not be deemed to limit your right to revise standards of
eligibility at any time as to both our present and future Receivables. In
general, a Receivable shall not be deemed eligible unless: (a) the Account
Debtor on such Receivable is and at all times continues to be acceptable to you,
and (b) such Receivable complies in all respects with the representations,
covenants and warranties hereinafter set forth. Except in your sole discretion,
Eligible Accounts shall not include any of the following (a) Receivables which
the Account Debtor has failed to pay within ninety (90) days of invoice date,
and all Receivables owed by any Account Debtor that has failed to pay fifty
percent (50%) or more of its Receivables owed to us within ninety (90) days of
invoice date; (b) Receivables with respect to which goods are placed on
consignment or for a guaranteed sale, or which contain other terms by reason of
which payment by the Account debtor may be conditional; (c) Receivables with
respect to which the Account Debtor is not a resident of the United States
unless the Receivable is supported by foreign credit insurance or a letter of
credit, in both instances satisfactory to and assigned to you; (d) Receivables
with respect to which the Account Debtor is the United States or any department,
agency or instrumentality of the United States, any State of the United States
or any city, town, municipality or division thereof unless all filings have been
made under the Federal Assignment of Claims Act or comparable state or other
statute; (e) Receivables with respect to which the Account Debtor is an officer,
employee or agent of, or subsidiary of, related to, affiliated with or has
common shareholders, officers or directors with us; (f) Receivables with respect
to which we are or may become liable to the Account Debtor for goods sold or
services rendered by the Account Debtor to us; (g) Receivables with respect to
an Account Debtor whose total obligations to us exceed thirty-five percent (35%)
as to Toys/Kids R Us, May Design, Levi's, or Lord and Taylor or twenty percent
(20%) of all outstanding Receivables; (h) Receivables with respect to which the
Account Debtor disputes liability or makes any claim with respect thereto, or is
subject to any insolvency proceeding, or becomes insolvent, fails or goes out of
business; or (i) the Receivable arises out of a contract or purchase order for
which a surety bond was issued on behalf of us.
F. Unless otherwise requested by us all Advances shall be made by a
wire transfer to the deposit account of us designated on schedule A annexed
hereto, or such other account as we shall notify you in writing. We shall pay to
you a funds transfer fee of $25.00 for each Advance. Said fees shall bs payable
on the first day of each month of the term hereof for all Advances made during
the preceding month.
4. We warrant and agree as to each such Receivable that at the time of the
sale or assignment thereof to you hereunder and at all times thereafter; it will
be a bona fide existing obligation created by the absolute sale and delivery of
merchandise or the rendition of services to customers in the ordinary course of
business and will be paid and performed according to the terms provided therein;
all documents delivered to you in connection therewith are genuine; it will be
enforceable against all parties thereto without credit, defense, offset or
counterclaim, real or claimed, whether arising out of the transaction creating
such Receivable or otherwise; that it will be in all other respects an Eligible
Account and it will be free and clear of liens and encumbrances. We further
warrant and agree as to each such Receivable that at the time of our report to
you of a Receivable to you we will have good title thereto and good right to
sell, assign, transfer and set over such Receivable to you. All invoices to
customers shall state plainly on the face thereof that the accounts
-3-
<PAGE>
receivable represented by such invoices have been assigned and are payable only
to you. You may prepare and mail all customers' invoices, and billings of such
customers' invoices by whomsoever done shall constitute an assignment to you of
the Receivables represented thereby whether or not the undersigned executes any
other specific instrument of assignment. We hereby further warrant and agree
that the customer in each instance has received and will accept the merchandise
sold or the services rendered and the invoice therefor without dispute or claim
in any respect whatsoever, including, without limitation disputes as to price,
terms or quality and defenses based on force majeure. We will notify you
promptly of and shall at our own cost and expense settle all disputes and claims
and will pay you promptly the amount of the Receivables affected thereby, as
well as the amount of any unapproved Receivable if unpaid at its due date. If
you so elect you are to have and are hereby granted the right and option at all
times to settle, compromise, adjust or litigate all disputes or claims directly
with the customer or other complainant upon such terms and conditions as you
deem advisable, and also the right to take possession of and to sell or cause to
be sold without notice any returned merchandise, at such prices, to such
purchasers and upon such terms as you deem advisable, and in any case to charge
the deficiencies, costs and expenses thereof (including attorneys' fees) to us.
In addition to all other rights hereunder, you may charge against our account
the full net face amount of any Receivable where there is such dispute, defense,
offset, claim and/or counterclaim (regardless of the extent or nature thereof or
whether arising out of the transaction creating such Receivable or otherwise) or
where the customer fails or refuses to pay the amount due within ninety (90)
days of its invoice date or the Receivable otherwise ceases to be an Eligible
Account, but such chargeback shall not be deemed a re-assignment thereof, and
title to such Receivable shall remain in you until such Receivable is fully
paid, settled or discharged. We hereby agree to indemnify and hold you harmless
against and in respect of any and all liability, loss or expense (including
attorneys' fees) arising out of or relating to any breach of warranty or
covenant on our part. Any merchandise which is returned by customers or
otherwise recovered shall be set aside, marked in your name and held by us as
your trustee. We exonerate you from any liability for any loss, depreciation or
other damage to Receivables unless caused by your willful and malicious act. We
agree to execute such further instruments as may be required or permitted by any
law relating to notices of or affidavits in connection with assignments of
accounts receivable and to cooperate with you in the filing or recording and
renewal thereof. As additional security for all of our Obligations to you, the
undersigned hereby grants you a continuing security interest in all Accounts,
General Intangibles, Equipment, and Inventory (as said terms are defined in
Article 9 of the Uniform Commercial Code as adopted in the State of New Jersey)
now existing or hereafter acquired by us and all proceeds thereof (the
"Collateral"). Each sale of Receivables hereunder shall constitute and be a
transaction separate from and independent of each other, but all such
transactions shall be subject to and governed by each and every of the terms,
provisions and conditions of this agreement. During the term of this agreement
we shall not sell, negotiate, pledge or assign or grant any security interest in
any Receivables, Accounts, General Intangibles, Equipment, or Inventory to any
one other than you without your prior consent, nor shall we grant or permit to
exist without your prior consent any mortgage, without your prior consent, nor
shall we grant or permit to exist without your prior consent any mortgage,
pledge, security interest, encumbrance or lien of any kind upon any of our
assets, except liens for taxes not yet due, liens incidental to our business
which were not incurred in connection with the borrowing of money or obtaining
of advances or credit and which do not in the aggregate materially detract from
the value of our assets or impair the use thereof in the operation of our
-4-
<PAGE>
business. We authorize you to sign our name and file in the public office any
Financing Statements or other instruments which may be required to perfect your
interest hereunder. We appoint such person whom you may designate as our
attorney with power: to endorse our name on any checks, notes, acceptances,
money orders, drafts or other forms of payment or security that may come in your
possession; to sign our name on any income or bill of lading relating to any
Receivable, on drafts against customers, on schedules of assignment of
Receivables, on notices of assignment and public records, on verification of
accounts and on notice to customers; to notify the post office authorities to
change the address for delivery of our mail to an address designated by you; to
receive, open and dispose of all mail addressed to us; to send requests for
verification of accounts to customers; and to do all other things you deem
necessary to carry out this Agreement. We hereby ratify and approve all acts of
the attorney and neither you nor the attorney will be liable for any acts of
commission or omission, nor for any error of judgment or mistake of fact or law.
This power, being coupled with an interest, is irrevocable so long as any
Receivable sold to you remains unpaid or any money remains due to you from us.
We shall immediately place notations upon our books of account to disclose the
assignment of all Receivables, accounts and general intangibles to you.
We also represent we are a corporation duly organized and validly existing
under the laws of our state of incorporation; that we do not conduct business
under any trade names except as set forth on Schedule A; that all of our assets,
including our books and records are at our address set forth following our name
on the signature page hereof; and agree that said assets and books and records
will be at such location or such other locations as we may notify you upon at
least ten (10) days prior written notice thereof; that there has been no
material adverse change in our financial condition since the date of the our
most recent financial statement submitted to you and that we conduct and will
conduct our business in compliance with all applicable laws.
5. ln the event of any breach by us of any provisions and/or upon the
termination of or the occurrence of an Event of Default under this Agreement,
the undersigned will repay upon demand all our Obligations to you and in
addition thereto all costs and expenses incurred to obtain or enforce payment of
any Obligation of the undersigned to you, or in the prosecution or defense of
any action or proceeding either against you or us concerning any matter
resulting from this Agreement and/or the Receivables or other Collateral and/or
any of our Obligations to you, including, without limitation, to defend
successfully, in whole or in part, any and all actions or proceedings brought by
the undersigned. In addition, we agree to reimburse you for the amount of all
filing and search fees, reasonable attorneys fees, costs and expenses incurred
by you in connection with the negotiating and closing of this agreement and any
ancillary documents issued in connection herewith and modifications and
additions to any of them. We shall also pay your customary charges for all
services performed by you for us at our request and all banking facility charges
incurred in connection with the opening and operation of our account with you,
and we shall also pay you your customary charges of $650 per day per examiner
for any field examination, collateral analysis or other business analysis, the
need for which is determined by you, plus all costs on disbursements incurred by
you in the performance of such examinations or analysis. If any remittances on
any Receivables are made directly to us, we shall hold the same as your property
and immediately deliver them to you in their original form together with any
necessary endorsement. We hereby waive presentment and protest of any instrument
-5-
<PAGE>
to each Receivable. If any tax by any governmental authority is imposed on any
transaction between us, or in respect to sales or the merchandise affected by
such sales, which you are or may be required to withhold or pay, we agree to
indemnify and hold you harmless in respect of such taxes, and we will repay you
the amount of any such taxes, which may be charged to our account.
6. We warrant that we are solvent and will so remain during the terms of
this Agreement. We agree to furnish to you within ninety (90) days of the end of
each fiscal year, year-end financial statements prepared on an audited basis by
our regularly employed Certified Public Accountant, such other periodic
unaudited financial statements and financial information as you shall reasonably
request, and, on each anniversary hereof, a list of our shareholders, officers
and directors. We shall also forward to you within forty five (45) days of the
end of each fiscal quarter a balance sheet and profit and loss statement
prepared by and certified as accurate by an officer of us, and within fifteen
(15) days of the end of each month an aging of Receivables and reconciliation
report. On each business day we shall report to you all Receivables arising
since our most recent report. We shall keep and maintain the Collateral insured
against all risk of loss or damage from fire, theft, vandalism, malicious
mischief, explosion, sprinklers, and all other hazards and risks of physical
damage included within the meaning of the term "extended coverage" in such
amounts as are ordinarily insured against by similar businesses. We shall also
keep and maintain comprehensive general public liability insurance and property
damage insurance, and insurance against loss from business interruption,
insuring against all risks relating to or arising from our use of the Collateral
and our other assets and the operation of our business. All such policies shall
be in such form, with such companies and in such amounts as may be satisfactory
to you. We shall deliver to you certified copies of such policies and evidence
of the payments of all premiums therefor. All such policies (except those of
public liability and liability property damage) shall contain a Lender's Loss
Payable Endorsement in a form satisfactory to you, naming you as sole loss payee
thereof, and containing a waiver of warranties. All proceeds payable under such
policies shall be payable to you and applied to the Obligations. THIS AGREEMENT
SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW JERSEY APPLICABLE TO CONTRACTS TO BE PERFORMED WHOLLY WITHIN THE STATE OF
NEW JERSEY and shall have an initial term of one (1) year from its effective
date; provided, however, that you may terminate it at any time by giving us at
least sixty (60) days prior written notice. If this Agreement is terminated by
you upon the occurrence of an Event of Default, or is terminated by us except as
set forth herein, in view of the impracticability and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of your lost profits as a result thereof, we shall pay
you upon the effective date of such termination a fee in an amount equal to
three percent (3.0%) of the Advance Limit. Such fee shall be presumed to be the
amount of damages sustained by you as the result of an early termination and we
acknowledge that it is reasonable under the circumstances currently existing.
The fee provided for in this Section shall be deemed included in the
Obligations. The mailing of a registered or certified letter of notice addressed
by one party to the other at its usual address shall constitute sufficient
notice, and the termination shall be effective on the appropriate date specified
in such letter.
-6-
<PAGE>
Notwithstanding the foregoing, you may terminate this Agreement, without notice,
upon the occurrence of any one or more of the following events (an "Event of
Default"): (a) default the payment or performance, when due or payable of any
payment required under this Agreement or under any future agreement or
supplement with your or under any of our obligations or under any agreement of
which we are a party with third parties; (b) any warranty, representation, or
other statement or furnished to you by us or on our behalf or by any guarantor
of our obligations hereunder or in connection herewith or in any instrument
furnished in compliance with or in reference to this Agreement proves or have
been false or misleading in any material respect when made of furnished or
becomes false in any material respect; (c) we fail or neglect to perform, keep
or observe any term, provision, condition, covenant, warranty or representation
contained in this Agreement or in any other agreement between us or any rider of
supplement which is required to be performed, kept or observed by us; (d) any
statement, report, financial statement, or certificate made or delivered by us,
or by any of our officers, employees or agents, to you is not true and correct
in any material respect; (e) the imposition of a lien or encumbrance on any of
our assets, including the Receivables, or the making of any levy, seizure or
attachment on all or any of our assets, including Receivables; (f) any material
adverse change in our financial condition or the financial condition of any
guarantor of our Obligations; (g) we or any guarantor of our Obligations become
insolvent, or unable to meet our or his debts as they mature, or fail, suspend
or go out of business or a case is commenced under the Bankruptcy Code or an
order for relief under the Bankruptcy Code is entered with respect of us or any
such guarantor, or a custodian or receiver (or other court designee performing
the functions of a receiver) is appointed for or takes possession of either our
or any such guarantor's assets or affairs; (h) we or any guarantor of our
Obligations cease to conduct our business as now conducted or are enjoined,
restrained or in any way prevented by court, governmental or administrative
order from conducting all or any material part of our business affairs; (i) a
notice of any lien, levy or assessment is filed of record with respect to all or
any of our assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, including, without limitation, the Pension Benefit Guaranty
Corporation, or if any taxes or debts owing at any time or times hereafter to
any one of them becomes a lien or encumbrance upon any of the Receivables or any
of our other assets and the same is not released within thirty (30) days after
the same becomes a lien or encumbrance; (j) you shall in good faith deem
yourself insecure or unsafe; (k) any guaranty given you with respect to our
Obligations is limited or terminated or otherwise deemed unenforceable or
invalid; (l) death of a guarantor of our Obligations, which guaranty is not
replaced by a guarantor, acceptable to you in your sole discretion; (m) we shall
fail to pay our taxes when due unless such taxes are being contested in good
faith by appropriate proceeding and with respect to which adequate reserves have
been provided on our books; or (n) should there be a sale or transfer of all or
substantially all of our assets or any change in our shareholdings. Upon the
effective date of termination for whatever reason, all moneys chargeable to our
account under this Agreement and all Obligations shall be immediately due and
payable without further notice or demand. Notwithstanding termination, until all
your rights and all our Obligations (including without limitation the payment in
full of all moneys chargeable to our account under this Agreement and the
provision of an indemnity as provided in the last sentence of this Agreement)
have been fully satisfied, (i) we shall continue to assign to you and grant you
a security interest in all of the collateral then existing or thereafter
arising, shall not factor or assign Receivables, or grant a security interest
therein or in any of our other assets to any other person or entity, shall state
-7-
<PAGE>
on the face of all invoices that the Accounts Receivable represented by such
invoices have been assigned and are payable only to you, and shall immediately
deliver any remittances to you in their original form, (ii) all of our
obligations and all of your rights and powers with respect to Receivables then
existing or thereafter arising, with respect to other Collateral or other
security then existing or thereafter arising or acquired, and with respect to
transactions or events occurring prior to the effective date of such termination
shall be unaffected and unimpaired by such termination, and (iii) all of our
representations, warranties, covenants and agreements and all other provisions
binding upon us contained herein shall survive and continue in full force and
effect, and shall be fully operative.
7. Failure by you to exercise any right, remedy or option under this
Agreement or delay by you in exercising the same will not operate as a waiver;
no waiver or consent by you will be effective unless it is in writing and then
only to the extent specifically stated. This Agreement cannot be changed or
terminated other than by a writing signed by the party to be charged, is our
entire contract, and is for the benefit of and binding upon the parties hereto
and their respective successors and assigns, heirs, executors, administration
and personal representatives, provided that we may not assign this Agreement
without your prior written consent. Your rights and remedies under this
Agreement will be cumulative and not exclusive of any other right or remedy
which you may have. BOTH YOU AND WE WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY
LITIGATION RELATING TO TRANSACTIONS UNDER THIS AGREEMENT, SUPPLEMENTS HERETO AND
ANY RELATED AGREEMENTS, AND WE AGREE NOT TO ASSERT ANY COUNTERCLAIM OF ANY
NATURE IN SUCH LITIGATION. In the event that you cease to act as factor for us
hereunder, we agree to furnish to you an indemnity satisfactory to you against
any item which could be charged to us under the terms hereof which may in your
sole and absolute discretion include the retention of any property held by you
or the holding by you without interest from the date of termination of any
balance standing to our credit, as security for our Obligations hereunder.
ATTEST: Very truly yours,
TDH LAFAYETTE INDUSTRIES, INC.
/s/ By: /s/
Secretary (Title) President
(Seal) Date: 8/8/96
Address: 140 Hinsdale Street
Brooklyn, New York 11207
-8-
<PAGE>
Accepted at Princeton, N.J.
BUSINESS ALLIANCE CAPITAL CORP.
By: /s/ William F. Seibold
----------------------------------
(Title) Senior Vice President
Date: 8/8/96
-9-
<PAGE>
Schedule A
Bank Account # __________________________
Bank Name and Wire Transfer Instructions
Trade Names
[none]
-10-
LAFAYETTE INDUSTRIES INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PRIMARY EARNINGS:
Earnings (loss) from continuing operations $(1,272,575) $ 283,249 $ (15,892) $ 142,127
Earnings (loss) from discontinued operations (398,285) 125,198 25,126 78,703
----------- ----------- ----------- -----------
$(1,670,860) $ 408,447 $ 9,234 $ 220,830
=========== =========== =========== ===========
SHARES:
Weighted average number of common shares
outstanding 1,818,571 2,201,561 2,087,143 2,269,863
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 -- 95,798 -- --
----------- ----------- ----------- -----------
1,818,571 1,314,859 2,087,143 1,287,363
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE:
Continuing operations $ (.70) $ .21 $ (.01) $ .11
Discontinued operations (.22) .10 .01 .06
----------- ----------- ----------- -----------
$ (.92) $ .31 $ .00 $ .17
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated condensed financial statements for the six months ended June 30,
1996 and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 43,921
<SECURITIES> 0
<RECEIVABLES> 1,474,233
<ALLOWANCES> 80,007
<INVENTORY> 766,395
<CURRENT-ASSETS> 3,348,998
<PP&E> 5,745,825
<DEPRECIATION> 364,146
<TOTAL-ASSETS> 9,146,730
<CURRENT-LIABILITIES> 6,034,341
<BONDS> 0
0
0
<COMMON> 25,600
<OTHER-SE> 1,877,673
<TOTAL-LIABILITY-AND-EQUITY> 9,146,730
<SALES> 4,626,860
<TOTAL-REVENUES> 4,626,860
<CGS> 3,368,862
<TOTAL-COSTS> 3,368,862
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154,909
<INCOME-PRETAX> (1,272,575)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,272,575)
<DISCONTINUED> (398,285)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,670,860)
<EPS-PRIMARY> (.92)
<EPS-DILUTED> (.92)
</TABLE>
