SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
Amendment No. 1
For the Quarter ended September 30, 1996
Commission File No. 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
incorporation or organization) Identification No.)
140 Hinsdale St.
Brooklyn, New York 11207
(Address of principal executive-offices) (Zip Code)
Registrant's telephone number, including area code: (718) 346-3099
Purpose of Amendment:
To include amended financial statements for the quarter ended September 30,
1996 reflecting certain writeoffs taken with respect to discontinued
subsidiaries and to include an amended Management's Discussion and Analysis of
Financial Condition and Results of Operations.
<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) 5
Consolidated Condensed Statements of Cash Flows
- Nine Months Ended September 30, 1996 and 1995
(Unaudited) 6
Notes to Interim Consolidated Condensed Financial
Statements (Unaudited) 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
SIGNATURES
EXHIBITS:
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>
September 30, 1996 December 31, 1995
(Unaudited) (As Restated -
------------------ see Note 3)
- ASSETS - -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,480 $ 27,771
Cash of discontinued subsidiary - 14,512
Accounts receivable - net of allowance for doubtful accounts of
$20,000 and $82,268, respectively 1,041,879 2,302,405
Accounts receivable of discontinued subsidiary - net of allowance
for doubtful accounts of $17,000 - 103,571
Inventories 536,858 436,858
Inventories of discontinued subsidiary - 307,079
Due from affiliate 50,337 50,337
Due from officers 104,610 104,610
Prepaid expenses and other current assets 22,688 140,349
Prepaid expenses and other current assets of discontinued subsidiary - 3,546
Refundable income taxes 190,414 349,664
Due from supplier of discontinued subsidiary - 330,714
Net assets of discontinued subsidiaries (Note 3) - 130,060
----------- -----------
TOTAL CURRENT ASSETS 1,955,266 4,301,476
NET ASSETS OF DISCONTINUED SUBSIDIARIES (Note 3) 490,000 -
FIXED ASSETS (Note 4) 2,709,527 2,767,233
FIXED ASSETS OF DISCONTINUED SUBSIDIARY(Note 4) - 2,548,090
OTHER ASSETS(Note 5) 124,142 96,672
OTHER ASSETS OF DISCONTINUED SUBSIDIARY(Note 5) - 450,969
----------- -----------
$ 5,278,935 $10,164,440
----------- -----------
</TABLE>
3
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
(Unaudited) (As Restated -
------------------ see Note 3)
- LIABILITIES AND SHAREHOLDERS' EQUITY - -----------------
<S> <C> <C>
CURRENT LIABILITIES:
Note Payable - finance company (Note 2) $ 618,380 $ 2,852,989
Accounts payable and accrued expenses 1,414,858 1,735,379
Accounts payable and accrued expenses of discontinued subsidiary 145,296 485,144
Accrued estimated costs of discontinued operation 50,000 -
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 460,873 85,185
Capitalized lease obligations of discontinued subsidiary- current portion 140,872 55,603
------------------ --------------
TOTAL CURRENT LIABILITIES 5,959,514 6,860,018
------------------ --------------
LONG-TERM LIABILITIES:
Capitalized lease obligations - 272,157
Capitalized lease obligations of discontinued operation - 118,257
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):
Capital stock, $.01 par value: 20,000,000 shares authorized; 5,335,802 shares
of common stock issued and outstanding September 30, 1996; 2,532,500 shares
(including 982,500 shares held in escrow) issued and outstanding
December 31,1995 53,358 25,325
Additional paid-in capital 5,976,132 4,249,040
Retained earnings (deficit) (7,781,630) (1,348,585)
Foreign currency translation (11,772) (11,772)
------------------ --------------
(1,763,912) 2,914,008
------------------ --------------
$5,278,935 $10,164,440
------------------ --------------
The accompanying notes are an integral part of these
consolidated condensed financial statements.
</TABLE>
4
<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 $ 4,021,451 $12,807,429 $ 918,828 $ 5,436,644
COST OF GOODS SOLD 3,396,401 9,171,449 730,424 4,021,144
----------- ----------- ----------- -----------
GROSS PROFIT 625,050 3,635,980 188,404 1,415,500
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling expenses 608,102 626,494 138,129 237,023
General and administrative expenses 1,454,542 2,056,183 452,010 789,524
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,062,644 2,682,677 590,139 1,032,647
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (1,437,594) 953,303 (401,735) 382,853
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest Expense (180,301) (233,411) (25,392) (98,785)
Interest and other income 9,719 200,367 (6,547) 113,108
----------- ----------- ----------- -----------
(170,582) (33,044) (31,939) 14,323
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (1,608,176) 920,259 (433,674) 397,176
Provision (credit) for income taxes - 267,465 - 144,284
----------- ------------ ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (1,608,176) 652,794 (433,674) 252,892
Income (loss) from operations of discontinued
subsidiaries - net of income taxes (Note 3) (584,560) 192,821 (88,204) 184,276
Estimated (loss) on discontinued business segment
net of income tax benefit of $0.00 (Note 3) (4,240,309) - (4,240,309) -
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(6,433,045) $ 845,615 $(4,762,187) $ 437,168
----------- ----------- ----------- -----------
EARNINGS (LOSS) PER COMMON
SHARE (Note 7):
Continuing operations $ (.45) $ .43 $ (.11) $ .15
Discontinued operations (.16) .13 (.02) .11
Estimated loss on discontinued business segment (1.18) . - (1.10) . -
----------- ----------- ----------- -----------
$ (1.79) $ .56 $ (1.23) $ .26
----------- ----------- ----------- -----------
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.
5
<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 ON CONTINUED OPERATIONS
Net Income (loss) $ (1,608,176) $ 652,794
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 58,527 56,500
Consulting fees 90,625 45,000
Provision for losses on accounts receivable (62,268) 22,500
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 1,322,794 (2,458,255)
Decrease (increase) in inventories (100,000) (1,152,740)
Decrease (increase) in prepaid expenses and other current assets 117,661 (593,878)
Decrease (increase) in due from supplier 330,714 -
Decrease (increase) in net assets of discontinued subsidiary (359,940) -
Decrease in security deposits and other assets - 4,459
Increase (decrease) in accounts payable, accrued expenses (320,521) 2,110,824
Increase in due to related party 591,850 -
Increase (Decrease) in income taxes payable 159,250 180,754
--------- ------------
Net cash (used) provided by operating activities 220,516 (1,132,042)
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES ON DISCONTINUED OPERATIONS
Net Income (loss) $ (4,824,869) $ 192,821
Adjustments to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 509,546 135,990
Provision for losses on accounts receivable (17,000) -
Provision for estimated future losses of discontinued operations 50,000 -
Provision for loss on disposal of equipment on discontinued operations 2,645,654 -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 120,571 (50,000)
Decrease (increase) in inventories 307,079 (210,000)
Decrease (increase) in prepaid expenses and other current assets 3,546 -
Decrease in security deposits and other assets 1,729 -
Increase (decrease) in accounts payable, accrued expenses (339,848) 290,000
----------- ----------
Net cash (used) provided by operating activities of
discontinued operations (1,543,592) 358,811
----------- ----------
NET CASH PROVIDED(USED) BY OPERATING ACTIVITIES (1,323,076) (773,231)
----------- ---------
</TABLE>
6
<PAGE>
LAFAYETTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------- --
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES ON CONTINUING OPERATIONS
Purchases of fixed assets (821) -
Loans and advances to officer - (27,693)
---------- ----------
Net cash (used) by investing activities (821) (27,693)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES ON DISCONTINUING OPERATIONS
Purchases of fixed assets (157,870) (2,524,613)
Organization costs - (702,039)
---------- ----------
Net cash (used) by investing activities (157,870) (3,226,652)
---------- ----------
NET CASH (USED) BY INVESTING ACTIVITIES (158,691) (3,254,345)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Net (repayments) proceeds from notes payable (2,234,609) 3,296,555
Repayment of capitalized leases (46,469) (27,478)
Repayment of loans payable - (33,750)
Proceeds from mortgage and equipment financing 725,000 -
Financing costs (118,095) -
Proceeds from capitalized leases 150,000 -
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 1,480,952 3,835,327
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES OF DISCONTINUING OPERATIONS
Net (repayments) proceeds from notes payable (32,988) -
---------- ----------
Net cash (used) by financing activities (32,988) -
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,447,964 3,835,327
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (33,803) (192,249)
Cash and cash equivalents, at beginning of year 42,283 295,795
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 8,480 $ 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.
7
<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. 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 $6,433,045 and has used substantial amounts of working
capital in its operations. At September 30, 1996, the Company
reflected negative working capital of $4,004,248. 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.
8
<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.
As of September 30, 1996, the Company remains in litigation in
an attempt to recover the seized assets of the Mexican
facility. Due to the uncertainty of the outcome of this
litigation, the Company has placed in reserve the net assets
of this subsidiary (approximately $4.2 million) and has
reflected this loss as a discontinued subsidiary.
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.
9
<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 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. $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.
(A)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.
(B)As of September 30, 1996, the Company remains in litigation
in an attempt to recover the seized assets of its subsidiaries
in Texas and Mexico. Due to the uncertainty of the outcome of
this litigation, the Company has placed in reserve the net
assets of this subsidiary and has reflected this loss on the
financial statements as a discontinued subsidiary. The 1995
and 1996 figures have been restated to reflect this change.
10
<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 of
discontinued subsidiary $ 2,166,145(i) $ 2,063,375
Tools and dies of discontinued subsidiary 169,973(i) 114,873
Leasehold improvements of discontinued subsidiary 335,214(i) 335,214
Building and improvements (ii) 1,493,853 1,493,103
Furniture and fixtures 146,300 146,229
Furniture and fixtures of discontinued subsidiary 31,895(i) 31,895
Assets held under capitalized leases 398,347 398,347
Assets held under capitalized leases of
discontinued subsidiary 159,169(i) 159,169
----------- ----------
Fixed assets of operating company 2,038,500 2,037,679
Less: accumulated depreciation and amortization 173,973 115,446
----------- ----------
1,864,527 1,922,233
Add: land (iii) 845,000 845,000
----------- ----------
Total fixed assets of operating company $2,709,527 $2,767,233
----------- ----------
Fixed assets of discontinued subsidiary 2,862,396(i) 2,704,526
Less: accumulated depreciation and amortization 208,347(i) 156,436
----------- ----------
Total fixed assets of discontinued subsidiary 2,654,049(i) 2,548,090
</TABLE>
(i) Fixed assets of the Texas and Mexican subsidiaries
with a book value of $2,654,049 have been reserved
for the estimated loss of the discontinued subsidiary
and the uncertainty of the ongoing litigation.(Note
3)
(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.
NOTE 5 - OTHER ASSETS:
<TABLE>
<CAPTION>
Other assets consisted of the following as of:
September 30 December 31
1996 1995
---- ----
<S> <C> <C>
Organization costs of discontinued subsidiary $ -(i) $ 449,240
Deferred financing costs 118,095 -
Deferred consulting fees - 90,625
Security deposits and other assets 6,047 6,047
Security deposits and other assets
of discontinued subsidiary -(i) 1,729
-------- ---------
$124,142 $ 547,641
-------- ---------
</TABLE>
(i) Organization costs of $193,073 and security deposits
of $1,729 were written off as a result of the
discontinued Mexican operation.
11
<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.
During the period of May 1996 through July 1996 $1,025,000 in
convertible debentures were sold of which $275,000 were
converted to 135,802 shares of common stock. These debentures
bear interest at 81/2% 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.
In August, 1996 2,000,000 shares of common stock were issued
at $.25 per share pursuant to Regulation S of the Securities
Act of 1933.
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.
12
<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 on the
statement of operations as discontinued operations in
accordance with Accounting Principles Board Opinion (APB) No.
30.
Results of Operations
Net sales for the nine months ended September 30, 1996 were
$4,021,451 as compared to the same period of the prior year of
$12,807,429, a decrease of $8,785,978 or 69%. Net sales for
the three months ended September 30, 1996 aggregated $918,828
as compared to $5,436,644 for three months ended September 30,
1995, a decrease of $4,785,491 or 83%. 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
28% as compared to a gross profit percentage of 16% 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 26% and 21% respectively.
13
<PAGE>
Operating expenses decreased from approximately $2,682,677 for
the nine month period ended September 30, 1995 to
approximately $2,062,644 for the nine month period ended
September 30, 1996 a decrease of $620,033. Operating expenses
decreased by approximately $442,508 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 three quarters 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
$1,608,176 (or $.45 per share) for the nine month period ended
September 30, 1996 as compared to income from continuing
operations of $652,794 or $.43 per share) for the comparative
period of the prior year. The loss from continuing operations
for the quarter ended September 30, 1996 was $433,674 ($.11
per share) as compared to income from continuing operations
for the three months ended September 30, 1995 of $252,892
($.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 $845,615 ($.56 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 $6,433,045 ($1.79 per share). Net income for the three
month period ended September 30, 1995 was $437,168 ($.26 per
share) as compared to a net loss of $4,762,187 ($1.23 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 $4,004,248.
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.
14
<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 of September 30, 1996, the Company remains in litigation in
an attempt to recover the seized assets of the Mexican
facility. Due to the uncertainty of the outcome of this
litigation, the Company has placed in reserve the assets of
this subsidiary and has reflected this loss as a discontinued
subsidiary.
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.
On December 20, 1996 Lafayette entered into an agreement with
SIS Capital Corp. whereby Lafayette acquired SES Holdings,
Inc., a majority-owned subsidiary of Consolidated Technology
Group Ltd. The acquisition was effected through the issuance
of shares of a newly-created series of preferred stock of
Lafayette which will be convertible into 65% of Lafayette's
common stock on a fully-diluted basis, after giving effect to
certain proposed financings. As a result of the acquisition,
and upon conversion of the preferred stock, Consolidated
Technology Group Ltd. will become the principal stockholder of
Lafayette.
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: January 28, 1997 /s/Lloyd C. Robinson
--------------------
Lloyd C. Robinson - Chief Financial Officer
16
<PAGE>
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 $(1,608,176) $ 652,794 $ (433,674) $ 252,892
Earnings (loss) from discontinued operations (584,560) 192,821 ( 88,204) 184,276
Estimated loss on discontinued business segment (4,240,309) (4,240,309) -
----------- ----------- ------------ ----------
$(6,433,045) $ 845,615 $ (4,762,187) $ 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 $ (.45) $ .43 $ (.11) $ .15
Discontinued operations (.16) .13 (.02) .11
Estimated discontinued business segment (1.18) . - (1.10) . -
----------- ----------- ------------ ----------
$ (1.79) $ .56 $ (1.23) $ .26
----------- ----------- ------------ ----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS
FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 8,480
<SECURITIES> 0
<RECEIVABLES> 1,061,879
<ALLOWANCES> 20,000
<INVENTORY> 536,858
<CURRENT-ASSETS> 1,955,266
<PP&E> 2,883,500
<DEPRECIATION> 173,973
<TOTAL-ASSETS> 5,278,935
<CURRENT-LIABILITIES> 5,959,514
<BONDS> 0
<COMMON> 53,358
0
0
<OTHER-SE> (1,817,270)
<TOTAL-LIABILITY-AND-EQUITY> 5,278,935
<SALES> 4,021,451
<TOTAL-REVENUES> 4,021,451
<CGS> 3,396,401
<TOTAL-COSTS> 3,396,401
<OTHER-EXPENSES> 2,062,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180,301
<INCOME-PRETAX> (1,608,176)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,608,176)
<DISCONTINUED> (4,824,869)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,433,045)
<EPS-PRIMARY> (1.79)
<EPS-DILUTED> (1.79)
</TABLE>
