URECOATS INDUSTRIES INC.
(Exact name of Registrant as Specified in its Charter)
Delaware		13-3545304
(State of Incorporation)		(I.R.S. Employer Identification No.)
Quorum Business Center, 718 South Military Trail, Deerfield Beach, FL 33442
(Address of Principal Executive Offices and Zip Code)
	(954) 428-8686
(Registrant’s Telephone Number, Including Area Cod)

				Page
PART I		FINANCIAL INFORMATION
		Item 1. Financial Statements		3
		Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
		Item 3. Quantitative and Qualitative Disclosures About Market Risk		19
		Item 4. Controls and Procedures		19
PART II		OTHER INFORMATION
		Item 1. Legal Proceedings		20
		Item 2. Changes in Securities and Use of Proceeds		20
		Item 3. Defaults Upon Senior Securities		20
		Item 4. Submission of Matters to a Vote of Security Holders		20
		Item 5. Other Information		21
		Item 6. Exhibits and Reports on Form 8-K		21
SIGNATURES				22
INDEX OF EXHIBITS				23

 

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Item 1.    Financial Statements

				Page
Condensed Consolidated Balance Sheets at June 30, 2004 (Unaudited) and December 31, 2003				4
Condensed Consolidated Statements of Operations for the Three Months Ended June 30, 2004 and June 30, 2003 (Unaudited)				6
Condensed Consolidated Statements of Operations for the Six Months Ended June 30, 2004 and June 30, 2003 (Unaudited)				7
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and June 30, 2003 (Unaudited)				8
Notes to Condensed Consolidated Financial Statements (Unaudited)				10

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ASSETS
		June 30,			December 31,
		2004			2003
		(Unaudited)
Current Assets:
Cash		$	97,396		$	42,718
Accounts Receivable (Net of Allowance for Doubtful Accounts of $651,855 and $358,607 at June 30, 2004 and December 31, 2003, respectively)			369,021			438,822
Inventory			728,339			743,104
Prepaid Expenses and Other Current Assets			393,240			30,499
Total Current Assets			1,587,996			1,255,143
Property, Plant and Equipment, Net			586,488			600,414
Other Assets:
Goodwill			774,000			774,000
Notes Receivable - Long Term			7,500			22,693
Deposits and Other Non-Current Assets			34,336			46,946
Total Other Assets			815,836			843,639
Total Assets		$	2,990,320		$	2,699,196

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		June 30,			December 31,
		2004			2003
		(Unaudited)
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts Payable and Accrued Expenses		$	3,108,288		$	3,706,423
Accounts Payable and Accrued Expenses - Related Party			686,871			603,465
Lines of Credit			798,236			797,047
Note Payable			-			15,500
Loans Payable - Related Party			4,010,000			60,000
Current Maturities of Long-Term Debt			42,859			26,580
Current Maturity of Capital Lease Obligation			2,318			-
Deferred Revenue			7,500			7,500
Total Current Liabilities			8,656,072			5,216,515
Long-Term Debt			15,935			52,349
Obligation Under Capital Lease			3,966			-
Total Liabilities			8,675,973			5,268,864
Stockholders’ Deficit:
Preferred Stock, $1.00 Par Value; 2,000,000 Shares Authorized, of which Designations:
Series A Convertible, 750,000 Shares Authorized; 62,500 Issued and Outstanding at June 30, 2004 and December 31, 2003; aggregate liquidation preference at June 30, 2004 and December 31, 2003 of $62,500			55,035			55,035
Series C Convertible, 750,000 Shares Authorized; 673,145 Issued and Outstanding at December 31, 2003; aggregate liquidation preference at December 31, 2003 of $14,026,309			-			673,145
Common Stock, $.01 Par Value; 40,000,000 Shares Authorized; 28,947,328 and 16,458,375 Issued and Outstanding at June 30, 2004 and December 31, 2003, respectively			289,473			164,584
Additional Paid-In Capital			52,792,710			52,114,399
Accumulated Deficit			(58,822,871	)		(55,576,831	)
Total Stockholders’ Deficit			(5,685,653	)		(2,569,668	)
Total Liabilities and Stockholders’ Deficit		$	2,990,320		$	2,699,196

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		For The Three Months Ended
		June 30,			June 30,
		2004			2003
Revenue:
Application Systems		$	-		$	332,700
Coatings, Sealants and Other Products			745,669			1,170,243
Total Revenue			745,669			1,502,943
Cost of Sales:
Application Systems			-			289,500
Coatings, Sealants and Other Products			531,854			825,951
Warranty Costs, Freight and Other Costs of Sales			45,227			881,915
Total Cost of Sales			577,081			1,997,366
Gross Profit (Loss)			168,588			(494,423	)
Operating Expenses:
Selling, General and Administrative			1,139,273			2,499,583
Professional Fees			155,678			385,034
Depreciation and Amortization			65,195			153,050
Research and Development			21,626			122,582
Consulting Fees			77,052			48,154
Interest Expense			28,973			34,057
Interest Expense - Related Party			68,919			-
Impairment of Assets			167,373			-
Total Operating Expenses			1,724,089			3,242,460
Net Loss		$	(1,555,501	)	$	(3,736,883	)
Net Loss Per Common Share - Basic and Diluted		$	(0.054	)	$	(0.248	)
Weighted Average Shares Outstanding			28,735,928			15,485,929

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		For The Six Months Ended
		June 30,			June 30,
		2004			2003
Revenue:
Application Systems		$	55,000		$	439,700
Coatings, Sealants and Other Products			1,338,447			2,101,845
Total Revenue			1,393,447			2,541,545
Cost of Sales:
Application Systems			40,000			373,500
Coatings, Sealants and Other Products			952,331			1,514,456
Warranty Costs, Freight and Other Costs of Sales			75,625			1,064,201
Total Cost of Sales			1,067,956			2,952,157
Gross Profit (Loss)			325,491			(410,612	)
Operating Expenses:
Selling, General and Administrative			2,639,427			4,272,286
Professional Fees			278,450			476,124
Depreciation and Amortization			129,426			267,886
Research and Development			63,295			243,174
Consulting Fees			144,633			142,992
Interest Expense			62,079			61,123
Interest Expense - Related Party			83,405			-
Impairment of Assets			167,373			-
Loss On Disposition of Machinery and Equipment			3,443			-
Total Operating Expenses			3,571,531			5,463,585
Operating Loss			(3,246,040	)		(5,874,197	)
Loss From Discontinued Operations			-			(3,413	)
Net Loss		$	(3,246,040	)	$	(5,877,610	)
Net Loss Per Common Share - Basic and Diluted
Continuing Operations		$	(0.113	)	$	(0.398	)
Discontinued Operations			-			-
Total		$	(0.113	)	$	(0.398	)
Weighted Average Shares Outstanding			28,784,466			15,399,879

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		For The Six Months Ended
		June 30,			June 30,
		2004			2003
Cash Flows From Operating Activities:
Net Loss		$	(3,246,040	)	$	(5,877,610	)
Adjustment to Reconcile Net Loss to Net Cash Used In Operating Activities:
Depreciation and Amortization			129,426			267,886
Impairment of Inventory			149,873			-
Impairment of Machinery and Equipment			17,500			-
Loss on Disposition of Machinery and Equipment			3,443			-
Non-Cash Operating Activities:
Board of Director Fees			-			174,000
Interest			-			34,277
Legal Fees, Settlements and Other Services			-			6,000
Other Compensation			-			35,370
Purchases of Costs of Goods Sold			-			34,408
(Increase) Decrease in Operating Assets:
Accounts and Loans Receivable			74,801			19,189
Notes Receivable			15,936			-
Inventory			(135,108	)		23,484
Prepaid Expenses and Other Current Assets			(378,677	)		(205,452	)
Increase (Decrease) In Operating Liabilities:
Accounts Payable and Accrued Expenses			(483,580	)		2,077,807
Accounts Payable and Accrued Expenses - Related Party			83,405			-
Deferred Income			-			7,500
Net Cash Used In Operating Activities			(3,769,021	)		(3,403,141	)
Cash Flows From Investing Activities:
Acquisitions of Machinery and Equipment			(134,243	)		(97,115	)
Acquisition of Intangible Assets			-			(487	)
Decrease in Deposits and Other Non-Current Assets			27,803			8,835
Net Cash Used In Investing Activities			(106,440	)		(88,767	)
Cash Flows From Financing Activities:
Proceeds from Loans Payable - Related Party			3,950,000			3,480,000
Proceeds from Notes and Lines of Credit			7,789			1,045,863
Payments on Notes and Lines of Credit			(6,600	)		(1,005,336	)
Payments on Long-Term Debt			(20,135	)		-
Payments on Capital Lease Obligation			(915	)		-
Net Cash Provided By Financing Activities			3,930,139			3,520,527
Net Increase In Cash			54,678			28,619
Cash at Beginning of Period			42,718			41,520
Cash at End of Period		$	97,396		$	70,139

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		For The Six Months Ended
		June 30,			June 30,
		2004			2003
Supplemental Disclosure Of Cash Flow Information:
Cash Payments for Income Taxes		$	-		$	-
Cash Payments for Interest		$	32,641		$	26,846
Non-Cash Investing Activities:
Dispositions of Deposits and Other Non-Current Assets		$	-		$	34,408
Machinery and Equipment Acquired via a Capital Lease Obligation			7,200			-
Total Non-Cash Investing Activities		$	7,200		$	34,408
Non-Cash Financing Activities:
Issuance of Common Stock Pursuant to Employment and Severance Agreements		$	8,574		$	-
Issuance of Common Stock Pursuant to the Conversion of Series C Preferred Stock			673,145			-
Issuance of Common Stock Pursuant to 2002 Non-Employee Director Restricted Stock Plan for Directors Fees			251,820			-
Extinguishment of Common Stock Pursuant to Settlement Agreement			(131,508	)		-
Issuance of Common Stock for Accrued Liabilities and Fractional Shares that resulted from the Conversion of Series C Preferred Stock			1,170			-
Issuance of Stock for Repayment of Debts			-			3,480,000
Issuance of Stock for Operating Activities			-			249,647
Total Non-Cash Financing Activities		$	803,201		$	3,729,647

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Note 2.  Going Concern.

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		June 30,			December 31,
		2004			2003
Raw Materials		$	29,821		$	-
Finished Goods			698,518			743,104
Total		$	728,339		$	743,104

Note 4.  Lines of Credit.

		June 30,			December 31,
		2004			2003
$300,000 Line of Credit, maturing August 31, 2004, bears interest at prime plus 1% per annum, secured by all of the assets of Infiniti Products, Inc. and a personal guarantee from the Chairman.		$	298,318		$	297,129
$500,000 Line of Credit, maturing February 1, 2005, bears interest at prime plus 2% per annum, secured by certain assets of RSM Technologies, Inc., a $500,000 Certificate of Deposit account owned by the Chairman and the Chairman is a co-borrower.		$	499,918		$	499,918
Total		$	798,236		$	797,047

Note 5.  Loans Payable - Related Party.

Note 6.  Preferred Stock and Common Stock.

i)

an aggregate of 10,684,800 shares of restricted Common Stock were issued to the Chairman, pursuant to the mandatory conversion of an aggregate of 460,245 shares of Series C Convertible Preferred Stock, which Series C Convertible Preferred Stock was purchased in 2002 and 2003 and previously valued and recorded in the aggregate at $9,204,900; and

ii)

an aggregate of 830,000 shares of restricted Common Stock were issued to a corporation, in which a director owns a material interest, pursuant to the mandatory conversion of an aggregate of 100,000 shares of Series C Convertible Preferred Stock, which Series C Convertible Preferred Stock was purchased in 2002 and previously valued and recorded in the aggregate at $2,000,000.

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		For The Three Months Ended June 30,
		2004						2003
					Per Share						Per Share
		Amount			Amount			Amount			Amount
Operating Loss		$	(1,555,501	)	$	(0.054	)	$	(3,736,883	)	$	(0.241	)
Dividends on Preferred Stock			-			-			(106,434	)		(0.007	)
Loss Available To Common Shareholders’			(1,555,501	)		(0.054	)		(3,843,317	)		(0.248	)
Other Items			-			-			-			-
Net Loss		$	(1,555,501	)	$	(0.054	)	$	(3,843,317	)	$	(0.248	)
Weighted Average Common Shares Outstanding			28,735,928						15,485,929

 

		For The Six Months Ended June 30,
		2004						2003
					Per Share						Per Share
		Amount			Amount			Amount			Amount
Operating Loss		$	(3,246,040	)	$	(0.113	)	$	(5,877,610	)	$	(0.382	)
Dividends on Preferred Stock			-			-			(245,173	)		(0.016	)
Loss Available To Common Shareholders’			(3,246,040	)		(0.113	)		(6,122,783	)		(0.398	)
Other Items			-			-			-			-
Net Loss		$	(3,246,040	)	$	(0.113	)	$	(6,122,783	)	$	(0.398	)
Weighted Average Common Shares Outstanding			28,784,466						15,399,879

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(i)

Corporate was derived from the financial data of Urecoats Industries Inc.;

(ii)

RSM Products was derived from the financial data of RSM Technologies, Inc.; and

(iii)

Infiniti Products was derived from the financial data of Infiniti Products, Inc.

					RSM			Infiniti
		Corporate			Products			Products			Total
Revenue:
Application Systems		$	-		$	55,000		$	-		$	55,000
Coating, Sealants and Other Products		$	-		$	290,920		$	1,047,527		$	1,338,447
Gross Profit:
Application Systems		$	-		$	15,000		$	-		$	15,000
Coatings, Sealants and Other Products		$	-		$	61,877		$	248,614		$	310,491
Operating Loss		$	(1,906,201	)		(1,110,689	)	$	(229,150	)	$	(3,246,040	)
Capital Expenditures (Net of Capital Leases)		$	26,570		$	62,233		$	45,440		$	134,243
Depreciation and Amortization Expense		$	40,608		$	87,757		$	1,061		$	129,426
Identifiable Assets		$	1,152,562		$	1,308,534		$	529,224		$	2,990,320

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

		For The Three Months Ended
		June 30,			June 30,
		2004			2003
Revenue:
Application Systems		$	-		$	332,700
Coatings, Sealants and Other Products			745,669			1,170,243
Total Revenue		$	745,669		$	1,502,943

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		For The Six Months Ended
		June 30,			June 30,
		2004			2003
Revenue:
Application Systems		$	55,000		$	439,700
Coatings, Sealants and Other Products			1,338,447			2,101,845
Total Revenue		$	1,393,447		$	2,541,545

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a)	Financial position and results of operations, including general and administrative expense targets and effects on income from continuing operations;

b)	Cash position and cash requirements, including the sufficiency of the Company’s cash requirements for the next twelve (12) months;

c)	Sales and margins;

d)	Sources, amounts and concentrations of revenue;

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e)	Costs and expenses;

f)	Accounting estimates, including treatment of goodwill and intangible assets, doubtful accounts, inventory, restructuring, warranty, and product returns;

g)	Operations, including international, supply chain, quality control, and manufacturing supply, capacity, and facilities, including the anticipated beginning of the Company’s manufacturing operations;

h)	Product and services, price of products, product lines, and product and sales channel mix;

i)	Relationship with customers, suppliers and strategic partners, including increased reliance on strategic partners;

j)	Raw material variations, substrate preparation, application specifications, operator techniques, and ambient weather fluctuations;

k)	Acquisition and disposition activity;

l)	Credit facilities and ability to raise capital;

m)	Real estate lease arrangements;

n)	Global economic, social, and geopolitical conditions;

o)	Industry trends and the Company’s response to these trends;

p)	Tax position and audits;

q)	Strategic organizational initiatives, cost-reduction efforts, including workforce reductions, and the effect on employees;

r)	Sources of competition;

s)	Protection of intellectual property;

t)	Outcome and effect of current and potential future litigation;

u)	Research and development efforts, including the Company’s investment in new technologies;

v)	Future lease obligations and other commitments and liabilities;

w)	Common stock, including trading price;

x)	Security of computer systems; and

y)	Changes in accounting policies and practices, as may be adopted by regulatory agencies, and the Financial Accounting Standards Board.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Item 4.  Controls and Procedures.

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Item 1.  Legal Proceedings.

Item 2.  Changes in Securities and Use of Proceeds.

a)

On May 28, 2004, 292,000 shares of the Company’s restricted common stock that were issued to the Chairman, pursuant to a one time grant on May 28, 2002 under the Company’s 2002 Non-Employee Director Restricted Stock Plan, became fully vested. The Company did not consider these shares issued and outstanding due to a vesting provision and as such no value was ascribed to these shares by the Company as of May 28, 2002. The value ascribed to these shares on May 28, 2004 was $197,100.

b)

On June 22, 2004, 96,000 shares of the Company’s restricted common stock that were issued to members of the Company’s Board of Directors on June 11, 2003, under the Company’s 2002 Non-Employee Director Restricted Stock Plan, became fully vested. The Company did not consider these shares issued and outstanding due to a vesting provision and as such no value was ascribed to these shares by the Company as of June 11, 2003. The value ascribed to these shares on June 22, 2004 was $54,720.

c)

On June 30, 2004, the Company issued 4,000 shares of the Company’s restricted common stock to the Company’s President, as other compensation, pursuant to an employment agreement. The value ascribed to these shares on June 30, 2004 was $2,204.

Item 4.  Submission of Matters to a Vote of Security Holders.

		For			Withheld
1. Richard J. Kurtz			24,287,322			26,753
2. Lt. General Arthur J. Gregg, US Army (Retired)			24,286,922			27,153
3. Steven Mendelow			24,287,372			26,703
4. Jerold L. Zaro			24,289,652			24,423
5. Mark A. Reichenbaum			24,287,372			26,703

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Item 6.  Exhibits and Reports on Form 8-K.

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Date:	August 16, 20004	URECOATS INDUSTRIES INC.
		By: /s/ Michael T. Adams
		Michael T. Adams
		President

Date:	August 16, 20004	URECOATS INDUSTRIES INC.
		By: /s/ Dennis A. Dolnick
		Dennis A. Dolnick
		Chief Financial Officer and Corporate Treasurer

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Exhibit Number		Description
31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification Of Principal Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.1		2002 Non-Employee Director Restricted Stock Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q for the quarter ended June 30, 2002, filed on August 19, 2002).
99.1		Definitive Proxy Statement (incorporate by reference to the Definitive Proxy Statement filed April 28, 2004, Security Ownership of Certain Beneficial Owners and Management, Security Ownership of Management table, footnote c).

 

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