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, 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)
|
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 November 12, 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
------------------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2004
and December 31, 2003 1-2
Consolidated Statements of Income for the Nine Months
Ended September 30, 2004 and 2003 3
Consolidated Statements of Income for the Three Months
Ended September 30, 2004 and 2003 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2004 and 2003 5-6
Notes to Consolidated Financial Statements 7-12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13-17
ITEM 3. CONTROLS AND PROCEDURES 17
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS 18
SIGNATURES 19
CERTIFICATIONS 20-21
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MORO CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
September 30,
2004 December 31,
(Unaudited) 2003
----------- -----------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents ................................. $ 552,780 $ 436,756
Trade Accounts Receivable, Net ............................ 3,623,846 2,413,597
Accounts Receivable on Contracts
(Including Retentions) ................................... 2,372,475 1,718,852
Inventory ................................................. 1,679,446 708,046
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts ..................... 315,566 362,745
Investment in Joint Venture ............................... 246,035 145,796
Prepaid Income Taxes ...................................... - 40,013
Prepaid Materials ......................................... 34,100 -
Other Current Assets ...................................... 92,351 31,823
------------ -----------
Total Current Assets ......................... 8,916,599 5,857,628
PROPERTY AND EQUIPMENT, NET ................................ 1,311,022 1,167,787
OTHER INTANGIBLE ASSETS, NET ............................... 28,500 26,508
OTHER ASSETS ............................................... 6,876 7,718
GOODWILL ................................................... 625,348 385,341
------------ -----------
Total Assets ................................. $ 10,888,345 $ 7,444,982
============ ===========
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See Accompanying Notes to the Consolidated Financial Statements
MORO CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
September 30,
2004 December 31,
(Unaudited) 2003
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of Credit ................................................ $ 2,107,526 $ 862,399
Current Portion of Long-Term Debt ............................. 414,381 437,941
Trade Accounts Payable ........................................ 2,241,791 1,405,901
Due to Former Owners .......................................... 83,731 431,322
Accrued Expenses .............................................. 501,265 222,864
Income Taxes Payable .......................................... 410,086 -
Billings in Excess of Costs and Estimated
Earnings on Uncompleted Contracts ........................... 226,180 40,410
----------- -----------
Total Current Liabilities ........................ 5,984,960 3,400,837
LONG-TERM LIABILITIES
Long-Term Debt ................................................ 995,572 948,388
Convertible Debentures ........................................ 650,000 650,000
Deferred Tax Liability ........................................ 171,500 159,000
----------- -----------
Total Long-Term Liabilities ..................... 1,817,072 1,757,388
STOCKHOLDERS' EQUITY
Preferred Stock, $.001 Par Value, Authorized
5,000,000 Shares; None Issued or Outstanding
at September 30, 2004 and December 31, 2003 .................. - -
Common Stock, $.001 Par Value, Authorized
25,000,000 Shares; Issued and Outstanding
6,250,000 Shares at September 30, 2004 and
December 31, 2003 ............................................ 6,250 6,250
Additional Paid-In Capital .................................... 793,325 793,325
Retained Earnings ............................................. 2,286,738 1,487,182
----------- -----------
Total Stockholders' Equity ....................... 3,086,313 2,286,757
----------- -----------
Total Liabilities and Stockholders' Equity ....... $10,888,345 $ 7,444,982
=========== ===========
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See Accompanying Notes to the Consolidated Financial Statements
MORO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
For the Nine Months Ended September, 30
2004 2003
------------ ------------
REVENUES
Construction Materials Sales, Net ................................ $ 12,970,564 $ 8,029,689
Mechanical Contracts Revenue Earned .............................. 8,530,885 10,030,581
------------ ------------
Total Revenues ........................................ 21,501,449 18,060,270
COST OF REVENUES
Cost of Goods Sold ............................................... 9,455,143 6,506,080
Cost of Construction Contract Revenue ............................ 7,946,359 9,133,352
------------ ------------
Total Cost of Revenues ................................ 17,401,502 15,639,432
GROSS PROFIT ........................................................ 4,099,947 2,420,838
OPERATING EXPENSES
Selling, General and Administrative Expenses ........................ 2,757,660 1,803,075
------------ ------------
OPERATING INCOME .................................................... 1,342,287 617,763
OTHER INCOME (EXPENSE)
Other ............................................................ 33,122 18,406
Interest Income .................................................. 1,831 3,255
Interest Expense ................................................. (145,498) (133,633)
Equity in Earnings of Joint Venture .............................. 100,239 -
------------ ------------
INCOME BEFORE INCOME TAXES .......................................... 1,331,981 505,791
PROVISION FOR INCOME TAXES .......................................... 532,425 208,303
------------ ------------
NET INCOME .......................................................... $ 799,556 $ 297,488
============ ============
EARNINGS PER SHARE - BASIC AND DILUTED .............................. $ 0.13 $ 0.05
============ ============
WEIGHED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED .................................................. 6,250,000 6,250,000
============ ============
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See Accompanying Notes to the Consolidated Financial Statements
MORO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
For the Three Months Ended September, 30
2004 2003
------------ ------------
REVENUES
Construction Materials Sales, Net ................................ $ 4,689,482 $ 3,450,305
Mechanical Contracts Revenue Earned .............................. 3,686,865 3,510,936
----------- -----------
Total Revenues ........................................ 8,376,347 6,961,241
COST OF REVENUES
Cost of Goods Sold ............................................... 3,411,786 2,798,606
Cost of Construction Contract Revenue ............................ 3,462,465 3,204,999
----------- -----------
Total Cost of Revenues ................................ 6,874,251 6,003,605
GROSS PROFIT ........................................................ 1,502,096 957,636
OPERATING EXPENSES
Selling, General and Administrative Expenses ........................ 1,001,425 569,351
----------- -----------
OPERATING INCOME .................................................... 500,671 388,285
OTHER INCOME (EXPENSE)
Other ............................................................ 11,359 6,340
Interest Income .................................................. 1,151 1,005
Interest Expense ................................................. (57,847) (62,051)
Equity in Earnings of Joint Venture .............................. - -
----------- -----------
INCOME BEFORE INCOME TAXES .......................................... 455,334 333,579
PROVISION FOR INCOME TAXES .......................................... 173,325 138,303
----------- -----------
NET INCOME .......................................................... $ 282,009 $ 195,276
=========== ===========
EARNINGS PER SHARE - BASIC AND DILUTED .............................. $ 0.05 $ 0.03
=========== ===========
WEIGHED AVERAGE SHARES OUTSTANDING -
BASIC AND DILUTED .................................................. 6,250,000 6,250,000
=========== ===========
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See Accompanying Notes to the Consolidated Financial Statements
MORO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
For the Nine Months Ended September 30,
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ........................................................... $ 799,556 $ 297,488
Adjustments to Reconcile Net Income to
Net Cash (Used in) Provided by Operating Activities:
Amortization ....................................................... 13,008 27,014
Depreciation ....................................................... 233,847 178,813
Equity in Earnings of Joint Venture ................................ (100,239) -
Deferred Income Taxes .............................................. 12,500 41,000
Changes in Assets and Liabilities, Net of Acquisitions:
Trade Accounts Receivable .......................................... (752,192) (571,338)
Contract Accounts Receivable ....................................... (653,623) 463,211
Inventory .......................................................... (695,593) (124,447)
Costs in Excess of Billings ........................................ 47,179 426,179
Prepaid Income Taxes ............................................... 40,013 -
Prepaid Materials .................................................. (34,100) -
Other Current Assets ............................................... (60,528) (37,160)
Other Assets ....................................................... 842 (1,375)
Trade Accounts Payable ............................................. 366,152 746,252
Due to Former Owners ............................................... (347,591) (401,391)
Accrued Expenses ................................................... 263,325 (136,869)
Income Taxes Payable ............................................... 410,086 (63,288)
Billings in Excess of Costs ........................................ 185,770 (527,265)
----------- -----------
Net Cash (Used in) Provided by Operating Activities ............ (271,588) 316,824
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property and Equipment ................................... (226,082) (215,272)
Acquisition of Business, Net of Cash Acquired ........................ (655,057) (4,478)
----------- -----------
Net Cash Used in Investing Activities .......................... (881,139) (219,750)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of Line of Credit ........................................... 4,385,127 946,200
Repayments of Line of Credit ......................................... (3,140,000) (1,275,326)
Proceeds of Notes Payable ............................................ 446,311 420,000
Principal Payments of Notes Payable .................................. (422,687) (398,835)
----------- -----------
Net Cash Provided by (Used in) Financing Activities ............ 1,268,751 (307,961)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 116,024 (210,887)
CASH AND CASH EQUIVALENTS- BEGINNING .................................... 436,756 976,239
----------- -----------
CASH AND CASH EQUIVALENTS - ENDING ...................................... $ 552,780 $ 765,352
=========== ===========
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See Accompanying Notes to the Consolidated Financial Statements
MORO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash Paid for Interest ............................................... $127,273 $ 61,050
======== ========
Cash Paid for Taxes .................................................. $ 60,720 $200,000
======== ========
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 Notes to the 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 financial statements as of September 30, 2004 and for the nine months ended September 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.
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.
MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the nine months and three months ended September 30, 2004, respectively. This contract is expected to be completed in the fourth quarter of 2004.
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"). 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 business acquired is preliminary and will be finalized when the third party appraisals are complete.
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.
MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 nine and three months ended September 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.
Stock-Based Compensation The Company adopted the disclosure provisions of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." At September 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:
Nine Months Ended
September 30,
2004 2003
--------- ----------
Net income, as reported $ 799,556 $ 297,488
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of tax effects - -
--------- ----------
Pro-forma net income $ 799,556 $ 297,488
========= ==========
Earnings per share:
Basic and diluted - as reported $ .13 $ .05
========= ==========
Basic and diluted - pro-forma $ .13 $ .05
========= ==========
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MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 EARNINGS PER SHARE (CONTINUED)
Three Months Ended
September 30,
2004 2003
--------- ----------
Net income, as reported $ 282,009 $ 195,276
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of tax effects - -
------------- ------------
Pro-forma net income $ 282,009 $ 195,276
============= ============
Earnings per share:
Basic and diluted - as reported $ .05 $ .03
============= ============
Basic and diluted - pro-forma $ .05 $ .03
============= ============
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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 September 30, 2004. These facilities expire on November 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.
MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 SEGMENT INFORMATION (CONTINUED)
Operating segment information (unaudited) for the nine months ended September 30, 2004 and 2003 is as follows:
Nine Months Ended Construction Mechanical
Sept. 30, 2004 Materials Contracting Corporate Total
-------------------------- ---------------- ----------------- --------------- ----------------
Total revenues $ 12,970,564 $ 8,530,885 $ - $ 21,501,449
Gross profit $ 3,515,421 $ 584,526 $ - $ 4,099,947
Operating segment
income (loss) from
operations $ 1,357,461 $ (1,350) $ (13,824) $ 1,342,287
Total segment assets $ 6,489,354 $ 4,388,382 $ 10,609 $ 10,888,345
Depreciation and
amortization expense $ 113,892 $ 132,963 $ - $ 246,855
Nine Months Ended Construction Mechanical
Sept. 30, 2003 Materials Contracting Corporate Total
-------------------------- ---------------- ----------------- --------------- ----------------
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
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MORO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 SEGMENT INFORMATION (CONTINUED)
Operating segment information (unaudited) for the three months ended September 30, 2004 and 2003 is as follows:
Three Months Ended Construction Mechanical
Sept. 30, 2004 Materials Contracting Corporate Total
-------------------------- ---------------- ----------------- --------------- ----------------
Total revenues $ 4,689,482 $ 3,686,865 $ - $ 8,376,347
Gross profit $ 1,277,696 $ 224,400 $ - $ 1,502,096
Operating segment
income (loss) from
operations $ 391,145 $ 86,835 $ 22,691 $ 500,671
Total segment assets $ 6,489,354 $ 4,388,382 $ 10,609 $ 10,888,345
Depreciation and
amortization expense $ 41,947 $ 43,173 $ - $ 85,120
Three Months Ended Construction Mechanical
Sept. 30, 2003 Materials Contracting Corporate Total
-------------------------- ---------------- ----------------- --------------- ----------------
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
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NOTE 7 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 at the time of the purchase by the Company's subsidiary 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.
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.
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 nine
months ended September 30, 2004 and 2003 are as follows:
Nine Months Nine Months
Ended Ended
Sept. 30, Sept. 30,
2004 2003
------------ ------------
Construction Materials Sales 60.3% 44.5%
Mechanical Contracting Sales 39.7% 55.5%
------------ ------------
Total 100.0% 100.0%
------------ ------------
Cost of Goods Sold 44.0% 36.0%
Cost of Construction Contract Revenue 36.9% 50.6%
------------ ------------
Total 80.9% 86.6%
------------ ------------
Gross Profit 19.1% 13.4%
Operating Expenses 12.8% 10.0%
------------ ------------
Operating Income 6.3% 3.4%
Other Income (Expenses) (0.1%) (0.6%)
------------- -------------
Income Before Income Taxes 6.2% 2.8%
Provision for Income Taxes 2.5% 1.2%
------------ ------------
Net Income 3.7% 1.6%
============ ============
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Percentage of total revenues for key revenue and expenditures for the three months ended September 30, 2004 and 2003 are as follows:
Three Months Three Months
Ended Ended
Sept. 30, Sept. 30,
2004 2003
----------- ------------
Construction Materials Sales 56.0% 49.6%
Mechanical Contracting Sales 44.0% 50.4%
----------- ------------
Total 100.0% 100.0%
----------- ------------
Cost of Goods Sold 40.7% 40.2%
Cost of Construction Contract Revenue 41.4% 46.0%
----------- ------------
Total 82.1% 86.2%
----------- ------------
Gross Profit 17.9% 13.8%
Operating Expenses 11.9% 8.2%
----------- ------------
Operating Income 6.0% 5.6%
Other Income (Expenses) (0.6%) (0.8%)
------------ -------------
Income Before Income Taxes 5.4% 4.8%
Provision for Income Tax 2.1% 2.0%
----------- ------------
Net Income 3.3% 2.8%
=========== ============
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Three Months Ended September 30, 2004
Total revenues for the three months ended September 30, 2004 were $8,376,347 compared with $6,961,241 for the same period a year ago, an increase of $1,415,106 or 20%. Revenues from the Construction Materials division were $4,689,482 for the three months ended September 30, 2004 compared with $3,450,305 for the three months ended September 30, 2003, an increase of 36%. 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 three months of the year are not expected to be as strong as they were during the first nine months of 2004. Revenues in the Mechanical Contracting division were $3,686,865 for the three months ended September 30, 2004 compared with $3,510,936 for the three months ended September 30, 2003.
The total cost of revenues for the three months ended September 30, 2004 increased by $870,646, which is primarily due to the increase in costs totaling $613,180 for the Construction Material division, which, as noted above, experienced a significant increase in revenue.
The gross profit margin for the three months ended September 30, 2004 was 17.9% compared with 13.8% for the same period a year ago, an increase of 4.1 percentage points. The gross profit margin for the Construction Materials division increased by 8.3 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 three months ended September 30, 2004 increased by $432,074, compared to the three months ended September 30, 2003. This increase is primarily due to the business acquired in April 2004.
Net income for the three months ended September 30, 2004 was $282,009 compared with a net income of $195,276 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).
Nine Months Ended September 30, 2004
Total revenues for the nine months ended September 30, 2004 were $21,501,449 compared with $18,060,270 for the same period a year ago, an increase of $3,441,179 or 19%. Revenues from the Construction Materials division were $12,970,564 for the nine months ended September 30, 2004 compared with $8,029,689 for the nine months ended September 30, 2003, an increase of 62%. 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 three months of the year are not expected to be as strong as they were during the first nine months of 2004. This increase was partially offset by a revenue decrease in the Mechanical Contracting division, which was $8,530,885 for the nine months ended September 30, 2004 compared with $10,030,581 for the nine months ended September 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 nine months ended September 30, 2004 increased by $1,762,070, which is primarily due to the increase in costs totaling $2,949,063 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 $1,186,993 for the same period.
The gross profit margin for the nine months ended September 30, 2004 was 19.1% compared with 13.4% for the same period a year ago, an increase of 5.7 percentage points. The gross profit margin for the Construction Materials division increased by 8.1 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 nine months ended September 30, 2004 increased by $954,585, compared to the nine months ended September 30, 2003. This increase is primarily due to the business acquired in April 2004.
Net income for the nine months ended September 30, 2004 was $799,556 compared with $297,488 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 $10,888,345 at September 30, 2004 compared to
$7,444,982 at December 31, 2003, an increase of $3,443,363. This increase was
due to higher receivables ($1,863,872), higher inventory ($971,400), net
purchases of property and equipment ($143,235), goodwill resulting from an
acquisition ($240,007), a purchase of prepaid materials for a construction
project ($34,100), increase in cash ($116,024), equity in earnings of Joint
Venture ($100,239) and other items decreased, net ($25,514).
Liquidity and Capital Resources
For the nine months ended September 30, 2004, there was a net increase of cash
and cash equivalents of $116,024. Cash flows used in operating activities of
$271,588 and investing activities of $881,139 were substantially offset by cash
flows provided by financing activities of $1,268,751.
As of September 30, 2004, cash on hand was $552,780 and working capital was $2,931,639. 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 September 30, 2004. At September 30, 2004, the borrowings under the line of credit were $2,107,526 and the availability of additional borrowings was $1,461,718. These facilities expire November 30, 2004. The Company is in the process of renewing or replacing these facilities.
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, 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
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.
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 12, 2004 /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: November 12, 2004 /s/ David W. Menard
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David W. Menard
Chief Executive Officer
and Chief Financial Officer
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