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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT
OR
[ ] TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2000
Commission File No. 000-26828
MORO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0338736
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
Bala Pointe, Suite 240
111 Presidential Boulevard
Bala Cynwyd, Pennsylvania 19004
(Address of Principal Executive Offices)(Zip Code)
(610) 667-9050
(Registrant's telephone number, including area code)
Check whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X NO
------
As of September 30, 2000, 5,650,000 shares of common stock were
outstanding.
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MORO CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
--------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 339,043
Accounts receivable 1,883,067
Inventory 515,708
Other current assets 32,511
------------
Total current assets 2,770,329
Property and equipment, net 294,970
Deposits 11,653
------------
$3,076,952 $ .
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 821,000
Notes payable 221,678 $ 50,000
Accounts payable 722,191
Accrued expenses 84,566 1,674
Income taxes payable 164,993 .
---------- ----------
Total current liabilities 2,014,428 51,674
---------- ----------
Long-term debt, net of current portion 460,683
----------
Stockholders' equity:
Common stock, $.001 par value; authorized
25,000,000 shares; issued and outstanding
5,000,000 shares at December 31, 1999 and
5,650,000 shares at September 30, 2000 5,650 5,000
Additional paid-in capital 493,925 53,825
Retained earnings (accumulated deficit) 102,266 (110,499)
---------- ----------
601,841 (51,674)
---------- ----------
$3,076,952 $ .
========== ==========
</TABLE>
See notes to consolidated financial statements
3
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MORO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 2,660,377 $5,234,666
Cost of sales 1,857,092 3,585,026
----------- ----------
Gross profit 803,285 1,649,640
----------- ----------
Operating expenses:
Selling, general and
administrative expenses 573,171 1,169,383 $ 42,736
Depreciation expense 15,363 21,400 .
------------ ------------ ---------- ----------
588,534 1,190,783 42,736
------------ ------------ ---------- ----------
Operating income (loss) 214,751 458,857 (42,736)
Other income (expense):
Interest expense (44,366) (81,099) .
------------ ------------ ---------- ----------
Income (loss) before income taxes 170,385 377,758 (42,736)
Provision for income taxes 80,874 164,993 .
------------ ------------ ---------- ----------
Net income (loss) before
reorganization items 89,511 212,765 (42,736)
Reorganization items . . 771,281
------------ ------------ ---------- ----------
Net income $ 89,511 $ $ 212,765 $ 728,545
============ ============ ========== =========
Earnings per share -
basic and diluted $ .02 . $ .04 .
============ ============ ========== ==========
Weighted average shares 5,387,143 . 5,289,632 .
============ ============ ========== ==========
</TABLE>
See notes to consolidated financial statements
4
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MORO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended Nine Months Ended
September 30, 2000 September 30, 1999
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 212,765 $ 728,545
Adjustment to reconcile net income to
net cash used by operating activities:
Common stock issued for services 10,000
Depreciation 21,400
Changes in assets and liabilities:
Increase in accounts receivable (476,855)
Increase in inventory (515,708)
Increase in other current assets (32,511) (103,627)
Increase in deposit (11,653)
Increase (decrease) in accounts payable
and accrued expenses 805,083 (915,422)
Increase in income taxes payable 164,993
---------- ---------
Net cash provided (used) by operating activities 177,514 (290,504)
---------- ---------
Cash flows from investing activities:
Purchase of property and equipment (316,370)
Acquisitions, net of cash required (1,406,212)
----------
Net cash used by investing activities (1,722,582)
----------
Cash flows from financing activities:
Issuance of common stock 225,000
Capital contributions 205,750
Proceeds of line of credit 1,021,000
Repayments of line of credit (200,000)
Proceeds of notes payable 644,861 58,825
Principal payments of notes payable (12,500)
---------- ---------
Net cash provided by investing activities 1,884,111 58,825
---------- ---------
Net increase (decrease) in cash 339,043 (231,679)
Cash at beginning of period 231,679
---------- ---------
Cash at end of period $ 339,043 $ 0
========== =========
Supplemental disclosure of non-cash financing activities:
Common stock issued for services $ 10,000
==========
</TABLE>
See notes to consolidated financial statements
5
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MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(Unaudited)
NOTE 1 DESCRIPTION OF THE BUSINESS
Moro Corporation, formerly Food Court Entertainment Network, Inc.
(the "Company"), is a Delaware corporation, which was incorporated
on February 12, 1992. The Company changed its name on June 7,
1999. The Company's plan was to establish a national television
network to broadcast a high quality television program called Cafe
USA, specifically to large, enclosed shopping mall food courts
across the United States.
The Company, which had been a development stage company, was
unable to market its Cafe USA network to advertisers, incurred
substantial losses and was unable to obtain additional financing.
Accordingly, the Company, while maintaining the operation of its
Cafe USA network in twenty malls and continuing to supply updated
programming to the malls each week, sought a purchaser for its
assets. In July 1998, the assets and operating leases were sold to
Prime Spot Media U.S.A. for $422,000. In connection therewith, the
Company has written down the carrying value of its assets subject
to the sales agreement to their selling price and has also written
off certain other assets and has accrued a liability for an
obligation under an existing employment agreement.
On June 24, 1998, the Board of Directors adopted a resolution that
the corporation file a petition for relief under Chapter 11 of
Title II of the United States Code (the Bankruptcy Code). The
voluntary petition was subsequently filed on August 13, 1998.
On May 3, 1999 (the "Confirmation Date"), the U.S. Bankruptcy
Court confirmed the Company's Plan of Reorganization (the
"Reorganization"), and the Company emerged from bankruptcy.
Pursuant to the Reorganization, on such date certain indebtedness
of the Company was canceled in exchange for cash and new equity
interests.
Holders of the Company's shares before the confirmation of
reorganization received 10% of the shares in the emerging entity.
The Company's creditors received all of the Company's net cash
assets, 5% of the Company stock in the emerging entity, plus a
total of $50,000 cash, and a note payable of $50,000 plus interest
of 5%.
At the close of business on March 31, 2000, the Company purchased
substantially all of the operating assets of J.M. Ahle Co., Inc.,
a New Jersey corporation ("Ahle") for cash. Ahle is a distributor
of reinforcing steel to contractors and subcontractors for use in
the construction of highways, airports, bridges, treatment
facilities, schools, public facilities, industrial and commercial
buildings, and other structures.
6
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MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
(Unaudited)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentations
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine
months ended September 30, 2000 are not necessarily indicative of
the results that may be expected for the year ended December 31,
2000. The unaudited financial statements should be read in
conjunction with the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year
ended December 31, 1999.
The accompanying unaudited condensed consolidated financial
statements include the accounts of J.M. Ahle Co., Inc. (100%
owned). See Note 3. All intercompany transactions have been
eliminated in consolidation.
Fresh start reporting
As of April 30, 1999, the Company adopted Fresh Start Reporting in
accordance with the American Institute of Certified Public
Accountant's Statement of Position 90-7 "Financial Reporting by
Entities in Reorganization under the Bankruptcy Code", ("SOP
90-7"). Fresh Start Reporting resulted in material changes to the
Condensed Consolidated Balance Sheet, including valuation of
assets, intangible assets (including goodwill) and liabilities at
fair market value and valuation of equity based on the appraised
reorganization value of the ongoing business.
Cash and cash equivalents
For purposes of reporting cash flows, the Company considers all
cash accounts, which are not subject to withdrawal restrictions or
penalties, and certificates of deposit and commercial paper with
original maturities of 90 days or less to be cash or cash
equivalents.
Accounts receivable
The allowance for doubtful accounts is based on management's
evaluation of outstanding accounts receivable at the end of the
year. No allowance for doubtful accounts has been provided, since
management believes all accounts are collectable.
Inventory
Inventory is recorded at the lower of cost or market using the
first-in, first-out (FIFO) method. As of September 30, 2000,
inventories consist of raw materials totaling $515,708.
7
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MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
(Unaudited)
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equipment and depreciation
Property and equipment are carried at cost. Depreciation is
calculated using the straight-line method over their estimated
useful lives of seven years.
Revenue recognition
Revenue from product sales is recognized upon shipment to
customers. Provisions for discounts and rebates to customers, and
returns and other adjustments are provided for in the same period
the related sales are recorded.
Income taxes
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to differences
between the basis of balance sheet items for financial and income
tax reporting. There is no difference between the basis for
financial and income tax reporting, thus no deferred tax asset or
liability was recorded.
NOTE 3 ACQUISITION
At the close of business on March 31, 2000, the Company purchased
substantially all of the operating assets of J.M. Ahle Co., Inc.,
a New Jersey corporation ("Ahle") for cash. Ahle is a distributor
of reinforcing steel to contractors and subcontractors for use in
the construction of highways, airports, bridges, treatment
facilities, schools, public facilities, industrial and commercial
buildings, and other structures.
As part of the transaction, the Company assumed substantially all
of the known operating liabilities of Ahle. In addition, the
Company acquired the assets of Ahle for their net book value plus
$100,000, all as set forth in the Asset Purchase Agreement. The
purchase price paid by the Company was $1,406,212.
The following unaudited pro forma consolidated results of
operations are presented as if the acquisition of Ahle had been
made at the beginning of the periods presented. The unaudited pro
forma information is not necessarily indicative of the results of
operations that would have occurred had the purchase been made at
the beginning of the periods presented or the future results of
the combined operations.
8
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MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
(Unaudited)
NOTE 3 ACQUISITION (CONTINUED)
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------
2000 1999
----------- ----------
<S> <C> <C>
Sales $ 7,281,350 $5,996,218
Cost of sales 4,944,522 4,123,692
----------- ----------
Gross profit 2,336,828 1,872,526
Operating expenses 1,696,215 1,376,268
----------- ----------
Operating income 640,613 496,258
Interest expense - net 79,002
----------- ----------
Income before income taxes 561,611 496,258
Provision for income taxes 236,993 208,428
----------- ----------
Net income $ 324,618 $ 287,830
=========== ==========
Basic earnings per common share $ .06 $ .06
====== ======
Diluted earnings per common share $ .06 $ .06
====== ======
Weighted average shares 5,289,632 5,000,000
=========== ==========
</TABLE>
NOTE 4 REORGANIZATION ITEMS
In accordance with SOP 90-7, expenses resulting from the Chapter
11 reorganization should be reported separately as reorganization
items in the Condensed Consolidated Statements of Operations.
NOTE 5 DEMAND NOTES PAYABLE, BANK
The Company has available a $1,250,000 line of credit from a bank
which accrues interest at prime plus .75% (10.25% at September 30,
2000). At September 30, 2000 borrowings on the line of credit were
$821,000. The line of credit is secured by all corporate assets.
NOTE 6 LONG-TERM DEBT
<TABLE>
<CAPTION>
<S> <C>
Term loan, bank, due April 1, 2005, payable in 60 equal monthly principal and
interest installments at 9.00%
annum. Corporate assets are pledged as collateral. $112,500
Subordinate term loan, due April 1, 2005, payable in 60 monthly interest
installments at 9.0% per annum. Principal payable in equal annual installments
of $75,000 beginning
on April 1, 2002. Collateral pledged is equipment. 300,000
Term loan due April 1, 2002, principal installment of $150,000 is due March 31,
2001 and bears interest at 8%
per annum. The remainder is payable in twelve equal
quarterly installments beginning April 1, 2001 and ending
April 1, 2004 and bears interest at 8% per annum. 219,861
Note payable, creditors, principal and interest at 5% per
annum due May 2000. 50,000
--------
682,361
Less: current portion 221,678
--------
$460,683
========
</TABLE>
9
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MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 AND 1999
(Unaudited)
NOTE 6 LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows:
2000 $221,678
2001 47,000
2002 124,224
2003 126,658
2004 87,801
2005 75,000
---------
$682,361
========
NOTE 7 COMMON STOCK
On March 31, 2000, the Company sold 571,429 shares of common stock
for $.35 per share for a total of $200,000 and issued 28,571
shares at $.35 per share in exchange for legal services rendered
to the Company.
On August 1, 2000, the Company sold 50,000 units each consisting
of one share of common stock and two warrants to purchase common
stock at $.75 per share. Each unit was sold for $.50 per share.
The common stock was recorded at $.495 per share and the warrants
at $.005 per share. The warrants expire on July 31, 2003.
The Company's principal stockholder contributed $205,750 of cash
as additional paid-in capital. No additional shares of common
stock were issued in connection with this transaction.
NOTE 8 INCENTIVE STOCK OPTION PLAN
In 2000, the Company established an incentive stock option plan
(the Plan) and presently has reserved 300,000 shares of the
Company's common stock for issuance under the Plan. Options
granted pursuant to the Plan and contractual agreements at
September 30, 2000 were 60,000 and those options were granted to
key employees. Exercise price is $.75 per common share, and vest
over five years. All issuances were granted at the fair market
value of the Company's common stock at time of grant. Since the
Company accounts for its options under APB No. 25, no compensation
expense was recognized.
The proforma net increase of the options based on Statement on
Financial Accounting Standard No. 123 for the three and nine month
periods ended September 30, 2000 did not significantly differ from
net income as presented using Black-Scholes methodology with an
interest rate of 5.6% and 25% volatility.
10
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Item 2. Management's Discussion and Analysis or Plan of Operation.
Results of Operations
During the nine months ended September 30, 2000, the Company had
revenues of $5,234,666, gross profit of $1,649,640, net income of $212,765, and
earnings per share of $.04. All of the revenues for the nine months ended
September 30, 2000 were attributable to the Company's operating subsidiary, J.M.
Ahle Co., Inc. ("Ahle") which was acquired by the Company as of April 1, 2000.
Plan of Operations
The Company engages in the identification, evaluation and investigation
of prospective business opportunities, and if believed warranted, to acquire
such businesses. As of April 1, 2000, the Company acquired substantially all of
the operating assets of Ahle, a distributor of reinforcing steel to the
construction industry. The Company intends to expand the business of Ahle and to
continue to evaluate and, if appropriate, pursue other potential business
acquisitions.
Liquidity and Capital Resources
For the nine month period ended September 30, 2000, there was a net
increase in cash of $339,043. This was attributable to the net cash provided by
investing and financing activities of $161,529 and the cash provided by
operating activities of $177,514. As of September 30, 2000, total cash on hand
was $339,043, and working capital was $755,901, of which $515,708 was invested
in inventory.
The Company financed the purchase of Ahle through a combination of bank
financing, loans and capital contributions from its principal stockholder, and
sales of equity securities of the Company. The Company intends to finance the
operations of Ahle through use of the bank line of credit as well as from funds
generated by the operations of Ahle. The Company believes these financial
resources are adequate to fund the current level of operations.
PART II- OTHER INFORMATION
Item 2. Changes in Securities
On August 1, 2000, the Company sold 50,000 shares of restricted Common
Stock at $.50 per share and warrants to purchase up to 100,000 shares of Common
Stock to an accredited investor for an aggregate of $25,000. The warrants are
exercisable at any time prior to July 31, 2003 at an exercise price of $.75 per
11
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share. The shares of Common Stock and warrants were issued pursuant to the
exemption from registration set forth in Section 4(2) and Rule 506 promulgated
under the Securities Act of 1933, and constitute restricted securities as such
term is defined under Rule 144 promulgated under the Act. The Company granted to
the investor certain piggyback registration rights in connection with the shares
of Common Stock and the shares of Common Stock underlying the warrants.
On August 1, 2000, the Company adopted the 2000 Stock Option Plan. The
Plan provides that the Company may issue options to key employees, directors and
consultants, to purchase up to 300,000 shares of Common Stock. In August 2000,
the Company issued fully vested options to acquire up to 60,000 shares of Common
Stock to three key employees. Subject to the specific terms of the Plan, the
options are exercisable at any time prior to July 31, 2005 at an exercise price
of $.75 per share. These options were issued pursuant to the exemption from
registration set forth in Rule 701 promulgated under the Act, and the options
and the shares underlying the options constitute restricted securities as such
term is defined under Rule 144 promulgated under the Act. The options are
intended to qualify as incentive stock options as defined in Section 422 of the
Internal Revenue Code of 1986.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following Exhibits are filed as part of this Form 10-
QSB:
Exhibit No. Description
----------- -----------
10.1 2000 Stock Option Plan dated August 1, 2000
10.2 Subscription Agreement between the Company and Greenwood
Partners, LLC, dated August 1, 2000
10.3 Greenwood Partners Warrant Certificate dated August 1, 2000
10.4 John Ahle Option Certificate dated August 1, 2000
10.5 Ronald Perlman Option Certificate dated August 1, 2000
10.6 Douglas Ahle Option Certificate dated August 1, 2000
27 Financial Data Schedule
(b) During the quarter ended September 30, 2000, the Company did not
file any reports on Form 8-K.
12
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MORO CORPORATION
Date: November 14, 2000 By: /s/ David W. Menard
--------------------------------
David W. Menard,
President
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