ZENX.085.Looks Cheap IMO.Results of Operations - 2003 vs. 2002
The acquisition of Aduddell Roofing and the discontinuation of Communications represent a dramatic shift. Having discontinued the Communications' operations, we believe that the results of operations for future periods will be stronger than in previous periods.
Revenues. Revenues for the year ended December 31, 2003 were $19,309,814. Revenues for the year ended December 31, 2002, were $2,869,792. The periods are not comparable. Revenues for 2003 reflect an entire year of Aduddell Roofing operations. Revenues from 2002 primarily reflect the fourth quarter revenues of Aduddell Roofing, which was acquired effective October 1, 2002. Aduddell Roofing (pro forma) revenues for the year ended December 31, 2002, were approximately $12.5 million. See footnote 19. The increase in 2003 revenues from 2002 revenues resulted from: (i) work on a General Motors facility that suffered catastrophic storm damage in May 2003 ($3.7 million), and (ii) general increases in sales efforts.
Operating Expenses. Operating expenses for the year ended December 31, 2003, were $17,722,745 or 92%. Operating expenses for the year ended December 31, 2002, were to $3,345,049 or 116.5% of revenue. The periods are not comparable. Operating expenses for 2003 reflect an entire year of Aduddell Roofing operations, while the operating expenses from 2002 primarily reflect the fourth quarter revenues of Aduddell Roofing. Aduddell Roofing (pro forma) operating expenses for the year ended December 31, 2002, were approximately $12.7 million. See footnote 19. The percentage of operating expenses to revenues for 2003 is generally consistent with Aduddell Roofing's historical performance.
The level of operating expenses for the year ended December 31, 2002, was impacted by higher costs associated with increases in sales staff and increased insurance rates.
Operating Income (Loss). Operating income for the year ended December 31, 2003, was $1,240,544 compared to an operating loss of $753,682 for the year ended December 31, 2002. Again, the periods are not comparable since the 2002 results reflect only the fourth quarter activities of Aduddell Roofing. The strength of the 2003 operating income was largely attributable to second quarter operating income of $1,377,932, which resulted from increased revenue due to tornado damage during the second quarter. The 2002 operating loss was attributable to $320,000 in merger costs and a loss of $271,000 on the sale of securities. The 2002 operating results were also affected by Aduddell Roofing's loss of $266,000.
Discontinued Operations. The operations of Zenex Communications were discontinued in the fourth quarter of 2002. For the year ended December 31, 2002, we realized a loss of $1,146,457. Included in the loss is the write-off of $713,703 in unamortized goodwill. For the year ended December 31, 2003, we realized a net gain of $122,000 from the discontinued operations of Zenex Communications. The net gain includes a loss on the sale of discontinued operations of $1,190,335 and a gain from the forgiveness of debt due to the insolvency filing of Zenex Communications of $1,312,777.
The Company has transferred much of the former operations of Zenex Communications to an unaffiliated third party, Red River Network, LLC, although the transaction documents have not been signed. The Company has guaranteed Zenex Communication notes totaling approximately $332,000 at December 31, 2003. Red River is currently servicing these notes. If Red River does not complete the acquisition, the Company would be required to service approximately $7,000 in monthly principal and interest payments under the notes.
Net Income (Loss). The net income for the year ended December 31, 2003, was $1,362,986, compared to $(1,900,139) for the year ended December 31, 2002. Net income for 2003 was aided by operating net income of $1,240,544 and a net gain of $122,442 resulting from the discontinued operations of Zenex Communications. The net loss for 2002 is a combination of the operating loss of $753,682 and the loss from discontinued operations of $1,146,457. Aduddell Roofing had a $88,000 loss for the (pro forma) year ended December 31, 2002. These results were influenced by the factors identified above under Operating Income (Loss) and Discontinued Operations.
The acquisition of Aduddell Roofing and the discontinuation of Communications represent a dramatic shift. Having discontinued the Communications' operations, we believe that the results of operations for future periods will be stronger than in previous periods.
Liquidity and Capital Resources
Year Ended December 31, 2003
Total assets increased from $7,586,359 to $8,239,663, liabilities decreased from $5,369,668 to $4,413,354 and shareholders' equity increased from $2,216,691 to $3,826,309 from December 31, 2002, to December 31, 2003. The increase in
assets comes from higher account receivables and costs and estimated earnings in excess of billings, which stem from greater activity. |
