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, 2003
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 Identification No.) Incorporation or organization) |
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)
As of October 31, 2003, 6,250,000 shares of common stock were outstanding.
Transitional Small Business Disclosure Format (check one)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
MORO CORPORATION
INDEX
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 1-2 Consolidated Statements of Income for the nine months and three months ended September 30, 2003 and 2002 3 Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 4 Notes to Financial Statements 5-11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-15 ITEM 3. CONTROLS AND PROCEDURES 16 PART II - OTHER INFORMATION --------------------------- ITEM 1. LEGAL PROCEEDINGS 17 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 17 ITEM 3. DEFAULTS UPON SENIOR SECURITIES 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 ITEM 5. OTHER INFORMATION 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17 SIGNATURES 17 CERTIFICATIONS 18-19 |
MORO CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2003 2002 (Unaudited) ------------------ ------------------ ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 765,352 $ 976,239 Trade Accounts Receivable, Net 2,499,258 1,927,920 Accounts Receivable on Contracts (Including Retentions) 2,103,795 2,567,006 Inventory 722,477 598,030 Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts 306,121 732,300 Other Current Assets 83,420 46,260 ------------------ ------------------ Total Current Assets 6,480,423 6,847,755 PROPERTY AND EQUIPMENT, NET 1,194,374 1,157,915 OTHER INTANGIBLE ASSETS, NET 35,516 62,530 OTHER ASSETS 6,968 5,593 GOODWILL 385,341 380,863 ------------------ ------------------ Total Assets $ 8,102,622 $ 8,454,656 ================== ================== |
See accompanying notes to consolidated financial statements
MORO CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2003 2002 (Unaudited) ------------------ ------------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Line of Credit $ 702,499 $ 1,031,625 Current Portion of Long-Term Debt 456,113 409,828 Trade Accounts Payable 1,934,743 1,188,491 Amounts Payable Related Party 565,764 967,155 Accrued Expenses 351,804 488,673 Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts 83,477 610,742 Income Taxes Payable 60,994 124,282 ------------------ ------------------ Total Current Liabilities 4,155,394 4,820,796 ------------------ ------------------ LONG-TERM LIABILITIES Long-Term Debt 983,422 1,008,542 Convertible Debentures 650,000 650,000 Deferred Tax Liability 108,000 67,000 ------------------ ------------------ Total Long-Term Liabilities 1,741,422 1,725,542 ------------------ ------------------ Total Liabilities 5,896,816 6,546,338 ------------------ ------------------ STOCKHOLDERS' EQUITY Preferred Stock, $.001 Par Value, Authorized 5,000,000 Shares; None Issued or Outstanding - - Common Stock, $.001 Par Value, 25,000,000 Shares; Issued and Outstanding 6,250,000 Shares at September 30, 2003 and 6,250,000 shares at December 31, 2002 6,250 6,250 Additional Paid-In Capital 793,325 793,325 Retained Earnings 1,406,231 1,108,743 ------------------ ------------------ Total Stockholders' Equity 2,205,806 1,908,318 ------------------ ------------------ Total Liabilities and Stockholders' Equity $ 8,102,622 $ 8,454,656 ================== ================== |
See accompanying notes to consolidated financial statements
MORO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, ----------------------------------- ----------------------------------- 2003 2002 2003 2002 ---------------- ---------------- ---------------- ---------------- REVENUES Construction Material Sales, Net $ 8,029,689 $ 8,608,577 $ 3,450,305 $ 3,617,883 Mechanical Contracts Revenue 10,030,581 - 3,510,936 - ---------------- ---------------- ---------------- ---------------- Total Revenues 18,060,270 8,608,577 6,961,241 3,617,883 ---------------- ---------------- ---------------- ---------------- COST OF REVENUES Cost of Goods Sold 6,506,080 6,744,620 2,798,606 2,815,747 Cost of Construction Contract Revenue 9,133,352 - 3,204,999 - ---------------- ---------------- ---------------- ---------------- Total cost of revenues 15,639,432 6,744,620 6,003,605 2,815,747 ---------------- ---------------- ---------------- ---------------- GROSS PROFIT 2,420,838 1,863,957 957,636 802,136 OPERATING EXPENSES Selling, General and Administrative Expenses 1,803,075 1,257,565 569,351 465,436 ---------------- ---------------- ---------------- ---------------- OPERATING INCOME 617,763 606,392 388,285 336,700 OTHER INCOME (EXPENSE) Other 18,406 - 6,340 - Interest Income 3,255 5,455 1,005 1,676 Interest Expense (133,633) (68,387) (62,051) (20,738) ---------------- ---------------- ---------------- ---------------- INCOME BEFORE INCOME TAXES 505,791 543,460 333,579 317,638 PROVISION FOR INCOME TAXES 208,303 220,000 138,303 135,000 ---------------- ---------------- ---------------- ---------------- NET INCOME $ 297,488 $ 323,460 $ 195,276 $ 182,638 ================ ================ ================ ================ EARNINGS PER SHARE - BASIC $ 0.05 $ 0.06 $ 0.03 $ 0.03 ================ ================ ================ ================ EARNINGS PER SHARE - DILUTED $ 0.05 $ 0.06 $ 0.03 $ 0.03 ================ ================ ================ ================ WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED) 6,250,000 5,650,000 6,250,000 5,650,000 ================ ================ ================ ================ |
See accompanying notes to consolidated financial statements
MORO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Unaudited)
Nine Months Nine Months Ended Ended Sept. 30, 2003 Sept. 30, 2002 ------------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income $ 297,488 $ 323,460 Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities: Amortization 27,014 - Depreciation 178,813 54,660 Provision for Deferred Income Taxes 41,000 - Changes in Assets and Liabilities, Net of Acquisitions: Trade Accounts Receivable (571,338) (849,233) Contract Accounts Receivable 463,211 - Inventory (124,447) 45,791 Costs in Excess of Billings 426,179 - Prepaid Income Taxes - 59,000 Other Current Assets (37,160) (123,031) Other Assets (1,375) - Trade Accounts Payable 746,252 559,929 Accrued Expenses (136,869) - Billings in Excess of Costs (527,265) - Income Taxes Payable (63,288) 152,313 ------------------- ------------------- Net Cash Provided by Operating Activities 718,215 222,889 ------------------- ------------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property and Equipment (215,272) (137,829) Business Acquisition Costs (4,478) - ------------------- ------------------- Net Cash Used in Investing Activities (219,750) (137,829) ------------------- ------------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds of Line of Credit 946,200 213,051 Repayments of Line of Credit (1,275,326) (500,000) Repayment of Amounts Payable Related Party (401,391) - Proceeds of Long-Term Debt 420,000 - Principal Payments of Notes Payable (398,835) (108,710) ------------------- ------------------- Net Cash Used in Financing Activities (709,352) (395,659) ------------------- ------------------- Net Decrease in Cash and Cash Equivalents (210,887) (310,599) CASH AND CASH EQUIVALENTS - BEGINNING 976,239 645,714 ------------------- ------------------- CASH AND CASH EQUIVALENTS - ENDING $ 765,352 $ 335,115 =================== =================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid for Interest $ 61,050 $ 67,118 =================== =================== Cash Paid for Taxes $ 200,000 $ - =================== =================== |
See accompanying notes to consolidated financial statements
MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 DESCRIPTION OF BUSINESS
Moro Corporation (the "Company") is engaged in two lines of business - Construction Materials (fabrication of concrete reinforcing steel and distribution of construction accessories) and Mechanical Contracting (heating, ventilation, air conditioning (HVAC), industrial plumbing and process piping services including in-house sheet metal and pipe fabrication capabilities). These products/services are used primarily in construction projects such as highways, bridges, industrial and commercial buildings, hospitals, schools, office buildings, and other kinds of structures. The Company's customers are mainly contractors and end users.
NOTE 2 FINANCIAL STATEMENTS AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information with the instructions for Form 10-QSB and Rule 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 ending September 30, 2003 are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. 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, 2002.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of the Company's wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounts receivable, trade are reported at amounts management expects to collect on balances outstanding at year-end. Accounts are charged to bad debt expense when deemed uncollectible based upon a periodic review of individual accounts. Accounts receivable are considered fully collectible by management and, accordingly, no allowance for doubtful accounts is considered necessary.
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill is measured for impairment in the fourth quarter of each year. Goodwill is attributable to the Mechanical Contracting segment of the Company.
Revenue from product sales is recognized upon shipment to customers, title passing and all obligations of the Company have been satisfied. Provisions for returns are provided for in the same period the related sales are recorded.
Revenues from construction contracts are recognized on the percentage-of-completion method, measured by the percentage of direct cost incurred to date to the estimated total direct cost for each contract. That method is used because management considers total direct cost to the best available measure of progress on the contracts. Revenues from time and material contracts are recognized currently as the work is performed.
Contract costs include all direct material, labor, subcontractor and those indirect costs that relate to construction performance. All other costs are expensed as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are first determined. Changes in job performance, job conditions and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The Company recognizes claim and contract modification costs as they are incurred and revenues when realization is probable and the amount can be reliably estimated which is generally at the time a claim or contract modification is accepted by all parties. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change in the near term.
The asset, "Costs and estimated earnings in excess of billings on uncompleted contracts" represents revenues recognized in excess of amounts billed. The liability, "Billings in excess of costs and estimated earnings on uncompleted contracts" represents billings in excess of revenues recognized.
Basic earnings per share amounts are computed based on net income divided by the weighted average number of shares actually issued and outstanding.
Diluted earnings per share amounts for the three months and nine months ended September 30, 2003 and 2002 are based on the weighted average number of shares calculated for basic earnings per share purposes increased by (when dilutive) the number of shares that would be outstanding assuming the exercise of certain outstanding stock options or warrants. Outstanding options to purchase 385,000 of common shares in 2003 and 2002 were not included in the computation of diluted earnings per share because their per share exercise price was greater than the average per share market price of the Company's common shares.
NOTE 4 RECENTLY ISSUED ACCOUNTING PRINCIPLES
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities ("SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement amends SFAS No. 133 for decisions made as part of the Derivatives Implementation Group process and in connection with implementation issues raised in relation to the application of the definition of a derivative. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The Company does not expect the requirements of SFAS 149 to have a material impact on the results of operations, financial position, or liquidity.
In May 2003, the FASB issued SFAS No. 150, for certain financial instruments with characteristics of both liabilities and equity. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect a material impact on the results of operations, financial position or liquidity.
NOTE 5 ACQUISITION
At the close of business on September 30, 2002, Moro/Rado Acquisition Corporation purchased substantially all of the operating assets of the former Rado Enterprises, Inc., a Pennsylvania corporation for cash and amounts payable. Moro/Rado Acquisition Corporation subsequently changed its name to Rado Enterprises, Inc. ("Rado"). Rado fabricates sheet metal ductwork and process piping and provides mechanical contracting services. The typical operating cycle for Rado, from the award of a contract through the completion of the contract, ranges from several weeks up to a period of approximately two years.
The following unaudited pro forma consolidated results of operations are presented as if the acquisition of Rado had been made at the beginning of the period presented. This unaudited pro forma information is being provided for informational purposes only. It 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.
NOTE 5 ACQUISITION (CONTINUED)
Nine Months Ended September 30, 2002 ------------------ Sales $ 18,250,000 Cost of sales 15,193,000 ------------------ Gross profit 3,057,000 Operating expenses 1,825,000 ------------------ Operating income 1,232,000 Other income 19,000 ------------------ Income before income taxes 1,251,000 Provision for income taxes 507,000 ------------------ Net income $ 744,000 ================== Basic earnings per common share $ .13 ================== Diluted earnings per common share $ .13 ================== Weighted average shares 5,650,000 ================== NOTE 6 STOCK OPTION PLAN |
The Company has an Incentive Stock Option Plan (the "Option Plan") for key employees. The Company accounts for the Option Plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the Option Plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
Nine Months Ended Three Months Ended September 30, September 30, -------------------------------- ------------------------------- 2003 2002 2003 2002 ------------- ------------- ------------- ------------- Net Income, as reported $ 297,488 $ 323,460 $ 195,276 $ 182,638 Less: Total stock-based compensation expense determined under the fair value based method for all awards, net of related tax effects - - - - ------------- ------------- ------------- ------------- Proforma Net Income $ 297,488 $ 323,460 $ 195,276 $ 182,638 Basic and diluted earnings per share, as reported $ .05 $ .05 $ .03 $ .03 Basic and diluted earnings per share, proforma $ .05 $ .05 $ .03 $ .03 |
NOTE 7 INVENTORY
Inventory is recorded at the lower of cost or market using the first-in, first-out (FIFO) method. As of September 30, 2003, all inventories consist of raw materials and parts, which are available for resale.
NOTE 8 DEMAND NOTES PAYABLE, BANK
The Company through its subsidiaries maintains credit facilities totaling $4,150,000, which are collateralized by the Company's assets. The Credit Facilities require the Company to maintain certain financial covenants, which the Company was in compliance with at September 30, 2003. These facilities expire on June 30, 2004.
NOTE 9 LONG-TERM DEBT
In September 2003, the Company entered into a term loan with a bank. The loan, in the amount of $400,000, is payable in equal monthly principal installments plus interest at prime plus .5% per annum (4.50% per annum at September 30, 2003).
NOTE 10 SEGMENT INFORMATION
The Company operates in two business segments: Construction Materials and Mechanical Contracting. The operating segments are managed separately and maintain separate personnel due to the differing services and products offered by each segment.
Operating segment information (unaudited) for the nine months ended September 30, 2003 and 2002 is as follows:
Nine Months Ended Construction Mechanical September 30, 2003 Materials Contracting Corporate Total ------------------ ------------------ ------------------ ------------------ ---------------- Revenues $ 8,029,689 $ 10,030,581 $ - $ 18,060,270 Gross profit $ 1,523,609 $ 897,229 $ - $ 2,420,838 Operating segment income (loss) from operations $ 306,678 $ 390,509 $ (79,424) $ 617,763 Total segment assets $ 3,687,299 $ 4,312,858 $ 102,465 $ 8,102,622 Depreciation and amortization expense $ 82,856 $ 122,971 $ - $ 205,827 |
NOTE 10 SEGMENT INFORMATION (CONTINUED)
Nine Months Ended Construction Mechanical September 30, 2002 Materials Contracting Corporate Total ------------------ ------------------ ------------------ ------------------ ----------------- Revenues $ 8,608,577 $ - $ - $ 8,608,577 Gross profit $ 1,863,957 $ - $ - $ 1,863,957 Operating segment income (loss) from operations $ 605,287 $ - $ 1,105 $ 606,392 Total segment assets $ 3,836,114 $ - $ 219,966 $ 4,056,080 Depreciation and amortization expense $ 54,660 $ - $ - $ 54,660 |
Segment information for the three months ended September 30, 2003 and 2002 is as follows:
Three Months Ended Construction Mechanical September 30, 2003 Materials Contracting Corporate Total ------------------ ------------------ ------------------ ------------------ ---------------- Revenues $ 3,450,305 $ 3,510,936 $ - $ 6,961,241 Gross profit $ 651,699 $ 305,937 $ - $ 957,636 Operating segment income (loss) from operations $ 235,771 $ 172,433 $ (19,919) $ 388,285 Total segment assets $ 3,687,299 $ 4,312,858 $ 102,465 $ 8,102,622 Depreciation and amortization expense $ 31,360 $ 34,809 $ - $ 66,169 Three Months Ended Construction Mechanical September 30, 2002 Materials Contracting Corporate Total ------------------ ------------------ ------------------ ------------------ ---------------- Revenues $ 3,617,883 $ - $ - $ 3,617,883 Gross profit $ 802,136 $ - $ - $ 802,136 Operating segment income (loss) from operations $ 332,215 $ - $ 4,485 $ 336,700 Total segment assets $ 3,836,114 $ - $ 219,966 $ 4,056,080 Depreciation and amortization expense $ 18,966 $ - $ - $ 18,966 |
NOTE 11 COMMITMENTS AND CONTINGENCIES
NOTE 12 RELATED PARTY TRANSACTION
During May 2003, the principal shareholder of the Company purchased, through an entity owned by such principal, the office, warehouse and shop facilities used by a subsidiary of the Company from a real estate partnership 50% owned by an employee of the subsidiary. The subsidiary had previously assigned to the principal its option to purchase this property from the real estate partnetship. The subsidiary has entered into a new lease agreement with an initial five year term of $120,000 per year (the same rate as previously being paid by the subsidiary) plus three five year options that extend through May 2018. The Company's management set the lease rate at the fair market value based on the advice from an independent professional real estate appraisal firm. The Company has not guaranteed the debt of the entity owned by the principal shareholder of the Company.
Item 2. Management's Discussion and Analysis or Plan of Operations.
Forward Looking Statements
This Form 10-QSB contains certain forward looking statements regarding, among
other things, the anticipated financial and operating results of the Company.
For this purpose, forward looking statements are any statements contained herein
that are not statements of historical fact and include, but are not limited to,
those preceded by or that include the words, "believes," "expects,"
"anticipates," or similar expressions. Those statements are subject to known and
unknown risks, uncertainties and other factors that could cause the actual
results to differ materially from those contemplated by the statements.
Important factors that could cause the Company's actual results to differ
materially from those projected include, for example (i) there is no assurance
that the Company can locate and purchase businesses that meet its criteria for
acquisition, (ii) there is no assurance that the Company will achieve high
returns on capital because of, among other reasons, unanticipated fluctuations
in costs such as material and labor, ineffective management of business
operations, or adverse change in the demand in the marketplace for our products,
or (iii) there may be unanticipated issues relating to the integration of new
businesses into our existing management and corporate culture. Although the
Company believes that the forward looking statements contained herein are
reasonable, it can give no assurance that the Company's expectations will be
met.
Critical Accounting Policies
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported therein. The financial statements
are prepared to conformity with generally accepted accounting principles, and,
as such, include amounts based on informed estimates and judgments of
management. For example, estimates are used in determining total contract costs
and profitability and valuation allowances for uncollectible receivables and
obsolete inventory. Actual results achieved in the future could differ from
current estimates. The Company used what it believes are reasonable assumptions
and where applicable, established valuation techniques in making its estimates.
Management believes the Company's most critical accounting policies are
discussed below.
Revenue Recognition
Revenue from product sales is recognized upon shipment to customers, title
passing and all obligations for the Company have been satisfied. Provisions for
returns are provided for in the same period the related sales are recorded.
Contract Revenue and Cost Recognition
Revenues from construction contracts are recognized on the
percentage-of-completion method, measured by the percentage of direct cost
incurred to date to the estimated total direct cost for each contract. That
method is used because management considers total direct cost to be the best
available measure of progress on the contracts. Revenues from time and material
contracts are recognized currently as the work is performed.
Contract costs include all direct material, labor, subcontractor and those indirect costs that relate to construction performance. All other costs are expensed as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are first determined. Changes in job performance, job conditions and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The Company recognizes claim and contract modification costs as they are incurred and revenues when realization is probable and the amount can be reliably estimated, which is generally at the time a claim or contract modification is accepted by all parties. Because of the inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change in the near term.
The asset, "Costs and estimated earnings in excess of billings on uncompleted contracts" represents revenues recognized in excess of amounts billed. The liability, "Billings in excess of costs and estimated earnings on uncompleted contracts" represents billings in excess of revenues recognized.
Inventory
Inventory is recorded at the lower of cost or market using the first-in,
first-out (FIFO) method.
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. The deferred tax liabilities represent the
future tax return consequences of those differences, which will either be
taxable or deductible when the liabilities are settled. A valuation allowance is
provided when realization of a deferred tax asset is unlikely.
Results of Operations
Percentage of total revenues for key revenue and expenditures for the three and
nine months ended September 30, 2003 and 2002 are as follows:
Nine Months Nine Months Three Months Three Months Ended Ended Ended Ended Sept. 30, 2003 Sept. 30, 2002 Sept. 30, 2003 Sept. 30, 2002 ----------------- ----------------- ----------------- ----------------- Construction materials sales 44.5% 100.0% 49.6% 100.0% Mechanical contracting sales 55.5% 0.0% 50.4% 0.0% ----------------- ----------------- ----------------- ----------------- Total 100.0% 100.0% 100.0% 100.0% ----------------- ----------------- ----------------- ----------------- Cost of goods sold 36.0% 78.3% 40.2% 77.8% Cost of construction contract revenue 50.6% 0.0% 46.0% 0.0% ----------------- ----------------- ----------------- ----------------- Total 86.6% 78.3% 86.2% 77.8% ----------------- ----------------- ----------------- ----------------- Gross profit 13.4% 21.7% 13.8% 22.2% Operating expenses 10.0% 14.6% 8.2% 12.9% ----------------- ----------------- ----------------- ----------------- Operating income 3.4% 7.0% 5.6% 9.3% Interest and other expenses, net 0.6% 0.7% 0.8% 0.5% ----------------- ----------------- ----------------- ----------------- Income before income taxes 2.8% 6.3% 4.8% 8.8% Income tax 1.2% 2.6% 2.0% 3.7% ----------------- ----------------- ----------------- ----------------- Net income 1.6% 3.7% 2.8% 5.1% ================= ================= ================= ================= |
Three Months Ended September 30, 2003
Revenues for the three months ended September 30, 2003 were $6,961,241 compared with $3,617,883 for the same period a year ago, an increase of $3,343,358 or 92%. Revenues for the Mechanical Contracting division were $3,510,936 compared with no revenues for the year ago period because this segment was not created until October 1, 2002 with the acquisition of Rado Enterprises, Inc. The revenue increase attributable to the Mechanical Contracting division accounted for 105% of the year-to-year increase offset by a decrease of 5% attributable to the Construction Materials division which experienced lower net selling prices for its products.
The cost of revenues for the three months ended September 30, 2003 increased by $3,187,858, which is primarily due to the Mechanical Contracting division.
The gross profit margin for the three months ended September 30, 2003 was 13.8% compared with 22.2% for the same period a year ago, a decline of 8.4 percentage points. The gross profit margin for the Construction Materials division declined by 3.3 percentage points and the balance of the decline was due to a lower gross margin realized by the Mechanical Contracting division.
Selling, general and administrative expenses for the three months ended September 30, 2003 increased by $103,915, representing a 22% increase for the same period a year ago. The increase is primarily attributable to the Mechanical Contracting division.
Net income for the three months ended September 30, 2003 was $195,276 compared with $182,638 for the same period a year ago, an increase of 7%. The increase was attributable primarily to the Mechanical Contracting division offset by lower gross margins for the Construction Materials division and higher corporate expenses due to higher accounting, legal and corporate development costs.
Nine Months Ended September 30, 2003
Sales for the nine months ended September 30, 2003 were $18,060,270 compared with $8,608,577 for the same period a year ago, an increase of $9,451,693 or 110%. Sales for the Mechanical Contracting division were $10,030,581 compared with no sales for the year ago period because this segment was not created until October 1, 2002 with the acquisition of Rado Enterprises, Inc. This sales increase was partially offset by a sales decline of $578,888 for the Construction Materials division, due to lower net selling prices from unfavorable winter weather conditions during the first quarter of 2003 and during the period.
Cost of sales for the nine months ended September 30, 2003 were $15,639,432 compared with $6,744,620 for the same period a year ago, an increase of $8,894,812. Cost of sales for the Mechanical Contracting division were $9,133,352 compared with no cost for the year ago period because this segment was not created until October 1, 2002. Cost of sales for the Construction Materials division decreased by 3.5% while sales decreased 6.7%.
The gross profit margin for the nine months ended September 30, 2003 was 13.4% compared with 21.7% for the same period a year ago, a decline of 8.3 percentage points. The gross profit margin for the Construction Materials division declined by 2.1 percentage points and the balance of the decline was due to a lower gross profit margin realized by the Mechanical Contracting division.
Selling, general and administrative expenses for the nine months ended September 30, 2003 were $1,803,075 compared with $1,257,565 for the same period a year ago. This increase of $545,510 is primarily due to the acquisition of the Mechanical Contracting division on October 1, 2002.
Net income for the nine months ended September 30, 2003 was $297,488 compared with net income of $323,460 for the same period a year ago, a decrease of $25,972 or 8%. The Mechanical Contracting division accounted for $170,710 or 57.4% of the net income for the nine months ended September 30, 2003. The decline in net income related to the Construction Materials division is attributable to losses incurred by the Construction Materials division during the first quarter of 2003, lower profit margin for the Construction Materials division due to competitive pressures on selling prices and higher corporate legal, accounting, interest and corporate development costs.
Liquidity and Capital Resources For the nine months ended September 30, 2003, there was a net decrease of cash of $210,887. Cash flows from operating activities of $718,215 were offset primarily by cash flows used in financing activities of $709,352 (mainly repayments of bank debt) and capital expenditures of $215,272.
As of September 30, 2003, cash on hand was $765,352 and working capital was $2,325,029. The Company believes that its financial resources are adequate to fund the current level of operations. The Company does not expect to purchase or sell any significant property and equipment during the next twelve months. The Company also does not anticipate any significant changes in the number of employees during the next twelve months.
The Company through its subsidiaries maintains line of credit facilities totaling $4,150,000, which are collateralized by the Company's assets. The Credit Facilities require the Company to maintain certain financial covenants, which the Company was in compliance with at September 30, 2003. At September 30, 2003, the borrowings under the line of credit were $702,499 and the availability of additional borrowings was $3,109,797.
Item 3. Controls and Procedures
Disclosure Controls and Procedures
Evaluation of disclosure controls and procedures. Based on their evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), the principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-QSB such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods.
Internal Control Over Financial Reporting
Changes in internal control over financial reporting. During the quarter under report, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
At September 30, 2003, there were no legal proceedings against the Company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Default Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
(a) Exhibits
31- Statement of Chief Executive and Chief Financial Officer (filed herewith).
32- Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K - During the quarter ended September 30, 2003, the Company filed a Form 8-K dated August 14, 2003, reporting information under Item 4 thereof relating to changes in its certifying accountant.
SIGNATURES
In accordance with the requirement of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized
MORO CORPORATION
By: /s/ David W. Menard --------------------------- David W. Menard Chief Executive Officer and Chief Financial Officer |
EXHIBIT 31
I, David W. Menard, certify that:
1. I have reviewed this Form 10-QSB of Moro Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)), to the issuer's auditors and the audit committee of the issuer's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.
Date: November 14, 2003 /s/ David W. Menard ------------------- David W. Menard Chief Executive Office and Chief Financial Office |
Exhibit 32
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the accompanying Quarterly Report of Moro Corporation (the "Company") on Form 10-QSB for the period ended September 30, 2003 (the "Report") as filed with the Securities and Exchange Commission on the date hereof, I, David W. Menard, Chief Executive Officer and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C., Subsection 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: November 14, 2003 /s/ David W. Menard ------------------- David W. Menard Chief Executive Officer and Chief Financial Officer |