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 June 30, 2004
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)
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The Woods
994 Old Eagle School Road, Suite 1000
Wayne, PA 19087
(Address of principal executive offices) (zip code)
(484) 367-0300
(Registrant's telephone number, including area code)
As of August 3, 2004, 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
Number Page(s)
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PART I - FINANCIAL INFORMATION
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2004
and December 31, 2003 1-2
Consolidated Statements of Income for the Six Months
Ended June 30, 2004 and 2003 3
Consolidated Statements of Income for the Three Months
Ended June 30, 2004 and 2003 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2004 and 2003 5-6
Notes to Consolidated Financial Statements 7-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-16
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 18
CERTIFICATIONS 19-20
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See accompanying Notes to Consolidated Financial Statements
MORO CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 AND DECEMBER 31, 2003
June 30,
2004 December 31,
(Unaudited) 2003
----------- -----------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents .............................. $ 229,117 $ 436,756
Trade Accounts Receivable, Net ......................... 3,416,267 2,413,597
Accounts Receivable on Contracts
(Including Retentions) ................................ 1,969,961 1,718,852
Inventory .............................................. 1,526,828 708,046
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 396,695 362,745
Investment in Joint Venture ............................ 246,035 145,796
Prepaid Income Taxes ................................... -- 40,013
Prepaid Materials ...................................... 533,275 --
Other Current Assets ................................... 101,452 31,823
----------- -----------
Total Current Assets ..................... 8,419,630 5,857,628
PROPERTY AND EQUIPMENT, NET ............................ 1,375,157 1,167,787
OTHER INTANGIBLE ASSETS, NET ........................... 30,500 26,508
OTHER ASSETS ........................................... 5,893 7,718
GOODWILL ............................................... 625,348 385,341
----------- -----------
Total Assets ............................. $10,456,528 $ 7,444,982
=========== ===========
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See accompanying Note to Consolidated Financial Statements
MORO CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2004 AND DECEMBER 31, 2003
June 30,
2004 December 31,
(Unaudited) 2003
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit ......................................... $ 1,982,876 $ 862,399
Current Portion of Long-Term Debt ...................... 467,698 437,941
Trade Accounts Payable ................................. 2,250,534 1,405,901
Due to Former Owners ................................... 276,524 431,322
Accrued Expenses ....................................... 352,502 222,864
Income Taxes Payable ................................... 291,481 --
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts .................... 60,370 40,410
----------- -----------
Total Current Liabilities ................ 5,681,985 3,400,837
LONG-TERM LIABILITIES
Long-Term Debt ......................................... 1,151,739 948,388
Convertible Debentures ................................. 650,000 650,000
Deferred Tax Liability ................................. 168,500 159,000
----------- -----------
Total Long-Term Liabilities .............. 1,970,239 1,757,388
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 Par Value, Authorized
5,000,000 Shares; None Issued or Outstanding
at June 30, 2004 and December 31, 2003 ................ -- --
Common Stock, $.001 Par Value, Authorized
25,000,000 Shares; Issued and Outstanding
6,250,000 Shares at June, 2004 and
December 31, 2003 ..................................... 6,250 6,250
Additional Paid-In Capital ............................. 793,325 793,325
Retained Earnings ...................................... 2,004,729 1,487,182
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Total Stockholders' Equity ............... 2,804,304 2,286,757
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Total Liabilities and Stockholders' Equity $10,456,528 $ 7,444,982
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See accompanying Note to Consolidated Financial Statements
MORO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
For the Six Months Ended June, 30
2004 2003
------------ ------------
REVENUES
Construction Materials Sales, Net ....... $ 8,281,082 $ 4,579,384
Mechanical Contracts Revenue Earned ..... 4,844,020 6,519,645
------------ ------------
Total Revenues ............... 13,125,102 11,099,029
COST OF REVENUES
Cost of Goods Sold ...................... 6,043,357 3,707,474
Cost of Construction Contract Revenue ... 4,483,894 5,928,353
------------ ------------
Total Cost of Revenues ....... 10,527,251 9,635,827
GROSS PROFIT ............................... 2,597,851 1,463,202
OPERATING EXPENSES
Selling, General and Administrative Expenses 1,756,235 1,233,724
------------ ------------
OPERATING INCOME ........................... 841,616 229,478
OTHER INCOME (EXPENSE)
Other ................................... 21,763 12,066
Interest Income ......................... 680 2,250
Interest Expense ........................ (87,651) (71,582)
Equity in Earnings of Joint Venture ..... 100,239 --
------------ ------------
INCOME BEFORE INCOME TAXES ................. 876,647 172,212
PROVISION FOR INCOME TAXES ................. 359,100 70,000
------------ ------------
NET INCOME ................................. $ 517,547 $ 102,212
============ ============
EARNINGS PER SHARE - BASIC AND DILUTED ..... $ 0.08 $ 0.02
============ ============
WEIGHED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED ......................... 6,250,000 6,250,000
============ ============
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See accompanying Note to Consolidated Financial Statements
MORO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
For the Three Months Ended June, 30
2004 2003
------------ ------------
REVENUES
Construction Materials Sales, Net........ $ 4,853,416 $ 3,150,673
Mechanical Contracts Revenue Earned...... 3,059,005 3,231,655
------------ ------------
Total Revenues................ 7,912,421 6,382,328
COST OF REVENUES
Cost of Goods Sold....................... 3,436,143 2,583,949
Cost of Construction Contract Revenue.... 2,649,067 3,001,215
------------ ------------
Total Cost of Revenues........ 6,085,210 5,585,164
GROSS PROFIT................................ 1,827,211 797,164
OPERATING EXPENSES
Selling, General and Administrative
Expenses............................... 1,085,723 561,897
------------ ------------
OPERATING INCOME............................ 741,488 235,267
OTHER INCOME (EXPENSE)
Other.................................... 18,958 7,654
Interest Income.......................... 276 708
Interest Expense......................... (44,091) (32,283)
Equity in Earnings of Joint Venture...... 42,239 -
------------ ------------
INCOME BEFORE INCOME TAXES.................. 758,870 211,346
PROVISION FOR INCOME TAXES.................. 313,400 81,342
------------ ------------
NET INCOME.................................. $ 445,470 $ 130,004
============ ============
EARNINGS PER SHARE - BASIC AND DILUTED...... $ 0.07 0.02
============ ============
WEIGHED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED.......................... 6,250,000 6,250,000
============ ============
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See accompanying Note to Consolidated Financial Statements
MORO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
For the Six Months Ended June 30,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................. $ 517,547 $ 102,212
Adjustments to Reconcile Net Income to
Net Cash (Used in) Provided by Operating Activities:
Amortization............................................. 11,008 18,006
Depreciation............................................. 150,727 121,652
Equity in Earnings of Joint Venture...................... (100,239) -
Deferred Income Taxes.................................... 9,500 27,100
Changes in Assets and Liabilities, Net of Acquisitions:
Trade Accounts Receivable................................ (544,613) (405,956)
Contract Accounts Receivable............................. (251,109) (115,942)
Inventory................................................ (542,975) (210,504)
Costs in Excess of Billings.............................. (33,950) 376,520
Prepaid Income Taxes..................................... 40,013 (30,597)
Prepaid Materials........................................ (533,275) -
Other Current Assets..................................... (69,629) (34,768)
Other Assets............................................. 1,825 (1,875)
Trade Accounts Payable................................... 374,895 1,342,383
Due to Former Owners..................................... (154,798) (137,065)
Accrued Expenses......................................... 114,562 (215,081)
Income Taxes Payable..................................... 291,481 (124,282)
Billings in Excess of Costs.............................. 19,960 (277,786)
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Net Cash (Used in) Provided by Operating Activities (699,070) 434,017
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment......................... (207,097) (125,064)
Acquisition of Business, Net of Cash Acquired.............. (655,057) (4,478)
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Net Cash Used in Investing Activities................ (862,154) (129,542)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of Line of Credit................................. 2,857,477 732,700
Repayments of Line of Credit............................... (1,737,000) (915,000)
Proceeds of Notes Payable.................................. 435,488 20,000
Principal Payments of Notes Payable........................ (202,380) (202,583)
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Net Cash Provided by (Used in) Financing Activities.. 1,353,585 (364,883)
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NET DECREASE IN CASH.......................................... (207,639) (60,408)
CASH - BEGINNING.............................................. 436,756 976,239
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CASH - ENDING................................................. $ 229,117 $ 915,831
============ ============
See accompanying Note to Consolidated Financial Statements
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SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash Paid for Interest..................................... $ 52,050 $ 41,110
============ ============
Cash Paid for Taxes........................................ $ 9,000 $ 200,000
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SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Acquisition of Whaling City Iron Assets and Liabilities:
Cash purchase price....................................... $ 245,000
Long-term debt incurred................................... 335,000
Other liabilities incurred................................ 75,057
------------
Total purchase price.................................. $ 655,057
============
Working capital acquired.................................. 249,050
Fair value of property and
equipment acquired....................................... 151,000
Covenant not to compete acquired 15,000
Goodwill acquired......................................... 240,007
------------
Total purchase price $ 655,057
============
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See accompanying Note to Consolidated Financial Statements
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
Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and the Company's wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
The financial statements as of June 30, 2004 and for the six months ended June 30, 2004 and 2003 are unaudited; however, in the opinion of management, such statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented.
The interim financial statements should be read in conjunction with the financial statements for the fiscal year ended December 31, 2003 and the notes thereto, included in the Company's report on Form 10-K for the year ended December 31, 2003.
Risks, Uncertainties and Management Estimates The results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2004.
The preparation of the Company's consolidated 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Interim Financial Reporting
For interim financial reporting purposes, costs and expenses are
accounted for in accordance with Accounting Principles Board Opinion
No. 28 ("APB 28").
See accompanying Notes to Consolidated Financial Statements
NOTE 3 ACQUISITION
Effective April 12, 2004, the Company purchased substantially all of the operating assets and assumed certain liabilities of Whaling City Iron Co. Whaling is a distributor of reinforcing, structural and miscellaneous steel sold to contractors, end users and metalworking firms located in the greater Boston, MA and Providence, RI areas.
The aggregate purchase price was $655,057. The Company funded the acquisition through (1) available cash resources of $245,000, (2) issuance of a bank note of $120,000 payable in seventy-two (72) equal monthly installments plus interest at the bank's Prime rate plus one-quarter percent (.25%), (3) issuance of a $200,000 5% subordinated note with principal payable in five (5) equal annual amounts of $40,000, (4) a covenant-not-to-compete of $15,000 payable in three (3) equal amounts of $5,000 plus 5% interest and (5) the balance of $75,057 is being paid out as certain acquired assets are liquidated into cash.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The allocation of the purchase price to the businesses acquired is preliminary and will be finalized when the third party appraisals are completed.
At April 12, 2004
Current Assets $ 733,864
Property, Plant and Equipment 151,000
Intangible Assets 15,000
Goodwill 240,007
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Total Assets Acquired 1,139,871
Total Liabilities Assumed 484,814
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Net Assets Acquired $ 655,057
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In accordance with FAS No. 142, Goodwill and Other Intangible Assets, the goodwill of $240,007 is not amortized but is reviewed annually by management for impairment. The Company estimates fair value using the expected present value of future cash flows. For income tax purposes, all goodwill is expected to be amortized over 15 years.
NOTE 4 EARNINGS PER SHARE
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 six and three months ended June 30, 2004 and 2003 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 2004 and 2003 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.
See accompanying Notes to Consolidated Financial Statements
Stock-Based Compensation
The Company adopted the disclosure provisions of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." At June 30, 2004 and 2003, the Company had one stock-based employee compensation plan. The Company accounts for this plan under the intrinsic value recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
If the Company had elected to recognize compensation cost based on the fair value of the options granted at grant date as prescribed by SFAS No. 123, net income and earnings per common share would have been reduced to the pro forma amount as follows:
Six Months Ended
June 30, June 30,
2004 2003
------------ --------------
Net income, as reported $ 517,547 $ 102,212
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of tax effects - -
------------- --------------
Pro-forma net income $ 517,547 $ 102,212
============= ==============
Earnings per share:
Basic and diluted - as reported $ .08 $ .02
============= ==============
Basic and diluted - pro-forma $ .08 $ .02
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Three Months Ended
June 30, June 30,
2004 2003
------------ ------------
Net income, as reported $ 445,470 $ 130,004
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of tax effects - -
------------- --------------
Pro-forma net income $ 445,470 $ 130,004
============= ==============
Earnings per share:
Basic and diluted - as reported $ .07 $ .02
============= ==============
Basic and diluted - pro-forma $ .07 $ .02
============= ==============
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See accompanying Notes to Consolidated Financial Statements
NOTE 5 DEMAND NOTES PAYABLE, BANK
The Company through its subsidiaries maintains credit facilities totaling $4,150,000, which are collateralized by substantially all of the Company's assets. The credit facilities require the Company to maintain certain financial covenants, which the Company was in compliance with at June 30, 2004. These facilities expire on September 30, 2004.
NOTE 6 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 six months ended June 30, 2004 and 2003 is as follows:
Six Months Ended Construction Mechanical
June 30, 2004 Materials Contracting Corporate Total
-------------------------- ---------------- ----------------- --------------- ----------------
Total revenues $ 8,281,082 $ 4,844,020 $ - $ 13,125,102
Gross profit $ 2,237,725 $ 360,126 $ - $ 2,597,851
Operating segment
income (loss) from
operations $ 966,316 $ (88,185) $ (36,515) $ 841,616
Total segment assets $ 5,893,869 $ 4,550,562 $ 12,097 $ 10,456,528
Depreciation and
amortization expense $ 71,945 $ 89,790 $ - $ 161,735
Six Months Ended Construction Mechanical
June 30, 2003 Materials Contracting Corporate Total
-------------------------- ---------------- ----------------- --------------- ----------------
Total revenues $ 4,579,384 $ 6,519,645 $ - $ 11,099,029
Gross profit $ 871,910 $ 591,292 $ - $ 1,463,202
Operating segment
income (loss) from
operations $ 70,907 $ 218,075 $ (59,504) $ 229,478
Total segment assets $ 3,735,859 $ 5,034,850 $ 36,545 $ 8,807,254
Depreciation and
amortization expense $ 51,496 $ 88,162 $ - $ 139,658
See accompanying Notes to Consolidated Financial Statements
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Operating segment information (unaudited) for the three months ended
June 30, 2004 and 2003 is as follows:
Three Months Ended Construction Mechanical
June 30, 2004 Materials Contracting Corporate Total
-------------------------- ---------------- ----------------- --------------- ----------------
Total revenues $ 4,853,416 $ 3,059,005 $ - $ 7,912,421
Gross profit $ 1,417,273 $ 409,938 $ - $ 1,827,211
Operating segment
income (loss) from
operations $ 611,415 $ 127,296 $ 2,777 $ 741,488
Total segment assets $ 5,893,869 $ 4,550,562 $ 12,097 $ 10,456,528
Depreciation and
amortization expense $ 39,959 $ 43,348 $ - $ 83,307
Three Months Ended Construction Mechanical
June 30, 2003 Materials Contracting Corporate Total
-------------------------- ---------------- ----------------- --------------- ----------------
Total revenues $ 3,150,673 $ 3,231,655 $ - $ 6,382,328
Gross profit $ 566,724 $ 230,440 $ - $ 797,164
Operating segment
income (loss) from
operations $ 132,968 $ 148,513 $ (46,214) $ 235,267
Total segment assets $ 3,735,859 $ 5,034,850 $ 36,545 $ 8,807,254
Depreciation and
amortization expense $ 27,983 $ 44,622 $ - $ 72,605
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NOTE 8 RELATED PARTY TRANSACTION
During April 2004, 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. The purchase was made in connection with the purchase of assets of the company operating the facility. The subsidiary has entered into a new lease agreement with an initial five year term of $45,000 per year plus three five year options that extend through April 2019. The Company believes that the rental set forth in the lease is at fair market value.
See accompanying Notes to Consolidated Financial Statements
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 in conformity with accounting principals generally accepted in the
United State of America, 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.
See accompanying Notes to Consolidated Financial Statements
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 six months
ended June 30, 2004 and 2003 are as follows:
Six Months Six Months
Ended Ended
June 30, June 30,
2004 2003
----------------- -----------------
Construction Materials Sales 63.1% 41.3%
Mechanical Contracting Sales 36.9% 58.7%
---------------- ----------------
Total 100.0% 100.0%
---------------- ----------------
Cost of Goods Sold 46.0% 33.4%
Cost of Construction Contract Revenue 34.2% 53.4%
---------------- ----------------
Total 80.2% 86.8%
---------------- ----------------
Gross Profit 19.8% 13.2%
Operating Expenses 13.4% 11.1%
---------------- ----------------
Operating Income 6.4% 2.1%
Interest and Other Income (Expenses), Net 0.3% (0.5%)
---------------- -----------------
Income Before Income Taxes 6.7% 1.6%
Income Tax 2.7% .6%
---------------- ----------------
Net Income 4.0% 1.0%
================ ================
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See accompanying Notes to Consolidated Financial Statements
Percentage of total revenues for key revenue and expenditures for the three months ended June 30, 2004 and 2003 are as follows:
Three Months Three Months
Ended Ended
June 30, June 30,
2004 2003
----------------- -----------------
Construction Materials Sales 61.3% 49.4%
Mechanical Contracting Sales 38.7% 50.6%
---------------- ----------------
Total 100.0% 100.0%
---------------- ----------------
Cost of Goods Sold 43.4% 40.5%
Cost of Construction Contract Revenue 33.5% 47.0%
---------------- ----------------
Total 76.9% 87.5%
---------------- ----------------
Gross Profit 23.1% 12.5%
Operating Expenses 13.7% 8.8%
---------------- ----------------
Operating Income 9.4% 3.7%
Interest and Other Income (Expenses), Net 0.2% (0.4%)
---------------- -----------------
Income Before Income Taxes 9.6% 3.3%
Income Tax 4.0% 1.3%
---------------- ----------------
Net Income 5.6% 2.0%
================ ================
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Three Months Ended June 30, 2004
Total revenues for the three months ended June 30, 2004 were $7,912,421 compared with $6,382,328 for the same period a year ago, an increase of $1,530,093 or 24%. Revenues from the Construction Materials division were $4,853,416 for the three months ended June 30, 2004 compared with $3,150,673 for the three months ended June 30, 2003, an increase of 54%. This increase was attributable to strong demand for the division's products accompanied by higher unit selling prices and revenues from a business acquired in April 2004. Steel demand and profit margins have recently started to soften, and therefore, earnings during the last six months of the year are not expected to be as strong as they were during the first half of 2004. This increase was partially offset by a revenue decrease in the Mechanical Contracting division, which was $3,059,005 for the three months ended June 30, 2004 compared with $3,231,655 for the three months ended June 30, 2003. This decrease in the Mechanical Contracting division is attributed to customers delaying projects. These delays are expected to be compensated for by higher billings later this year.
The total cost of revenues for the three months ended June 30, 2004 increased by $500,046, which is primarily due to the increase in costs totaling $852,194 for the Construction Material division, which, as noted above, experienced a significant increase in revenue offset by decreased costs in the Mechanical Contracting division of $352,148 for the same period.
The gross profit margin for the three months ended June 30, 2004 was 23.1% compared with 12.5% for the same period a year ago, an increase of 10.6 percentage points. The gross profit margin for the Construction Materials division increased by 11.3 percentage points and the balance was due to a lower gross margin realized by the Mechanical Contracting division.
See accompanying Notes to Consolidated Financial Statements
Selling, general and administrative expenses for the three months ended June 30, 2004 increased by $523,826, compared to the three months ended June 30, 2003. This increase is primarily due to the business acquired in April 2004.
Net income for the three months ended June 30, 2004 was $445,470 compared with a net income of $130,004 for the same period a year ago. The increase was attributable to improved performance for the Construction Materials division (higher sales and higher profit margins due to higher unit selling prices and profits from a business acquired in April 2004).
Six Months Ended June 30, 2004
Total revenues for the six months ended June 30, 2004 were $13,125,102 compared with $11,099,029 for the same period a year ago, an increase of $2,026,073 or 18%. Revenues from the Construction Materials division were $8,281,082 for the six months ended June 30, 2004 compared with $4,579,384 for the six months ended June 30, 2003, an increase of 81%. This increase was attributable to strong demand for the division's products accompanied by higher unit selling prices and revenues from a business acquired in April 2004. Steel demand and profit margins have recently started to soften, and therefore, earnings during the last six months of the year are not expected to be as strong as they were during the first half of 2004. This increase was partially offset by a revenue decrease in the Mechanical Contracting division, which was $4,844,020 for the six months ended June 30, 2004 compared with $6,519,645 for the six months ended June 30, 2003. This decrease in the Mechanical Contracting division is attributed to customers delaying projects. These delays are expected to be compensated for by higher billings later this year.
The total cost of revenues for the six months ended June 30, 2004 increased by $891,424, which is primarily due to the increase in costs totaling $2,335,883 for the Construction Material division, which, as noted above, experienced a significant increase in revenue offset by decreased costs in the Mechanical Contracting division of $1,444,459 for the same period.
The gross profit margin for the six months ended June 30, 2004 was 19.8% compared with 13.2% for the same period a year ago, an increase of 6.6 percentage points. The gross profit margin for the Construction Materials division increased by 8 percentage points and the balance was due to a lower gross margin realized by the Mechanical Contracting division.
Selling, general and administrative expenses for the six months ended June 30, 2004 increased by $522,511, compared to the six months ended June 30, 2003. This increase is primarily due to the business acquired in April 2004.
Net income for the six months ended June 30, 2004 was $517,547 compared with $102,212 for the same period a year ago. The increase was attributable to improved performance for the Construction Materials division (higher sales and higher profit margins due to higher unit selling prices) and profits from a business acquired in April 2004.
Financial Condition
Total assets increased to $10,456,528 at June 30, 2004 compared to $7,444,982 at December 31, 2003, an increase of $3,011,546. This increase was due to higher receivables ($1,253,779), higher inventory ($818,782), net purchases of property and equipment ($207,370), goodwill resulting from an acquisition ($240,007), a purchase of in prepaid materials for a construction project ($533,275) and other items, net ($41,667).
See accompanying Notes to Consolidated Financial Statements
Liquidity and Capital Resources
For the six months ended June 30, 2004, there was a net decrease of cash of $207,639. Cash flows used in operating activities of $699,070 and investing activities of $862,154 were substantially offset by cash flows from financing activities.
As of June 30, 2004, cash on hand was $229,117 and working capital was $2,737,645. 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 except that which would be associated with possible business acquisitions.
The Company through its subsidiaries maintains line of credit facilities totaling $4,150,000, which are collateralized by substantially all of the Company's assets. The credit facilities require the Company to maintain certain financial covenants, which the Company was in compliance with at June 30, 2004. At June 30, 2004, the borrowings under the line of credit were $1,982,876 and the availability of additional borrowings was $1,440,000.
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.
See accompanying Notes to Consolidated Financial Statements
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
At June 30, 2004, 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 - None.
See accompanying Notes to Consolidated Financial Statements
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
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David W. Menard
Chief Executive Officer and Chief Financial Officer
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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: August 13, 2004 By: /s/ David W. Menard
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David W. Menard
Chief Executive Officer
and Chief Financial Officer
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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 June 30, 2004 (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: August 13, 2004 /s/ David W. Menard
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David W. Menard
Chief Executive Officer and Chief Financial
Officer
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