UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM10-Q

(Mark One)

For the quarterly period ended March 31,June 30, 2020

OR

For the transition period from ____________ to ___________

Commission file number000-01227

Chicago Rivet & Machine Co.

(Exact Name of Registrant as Specified in Its Charter)

(630)357-8500

Registrant’s Telephone Number, Including Area Code

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically, every interactive data file required to be submitted pursuant to Rule 405 of RegulationS-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”filer”, “accelerated filer,”filer”, “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).    Yes  ☐    No   ☒

Securities registered pursuant to Section 12(b) of the Act:

As of May 1,August 3, 2020, there were 966,132 shares of the registrant’s common stock outstanding.

CHICAGO RIVET & MACHINE CO.

INDEX

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

March 31,June 30, 2020 and December 31, 2019

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

March 31,June 30, 2020 and December 31, 2019

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Income

For the Three and Six Months Ended March 31,June 30, 2020 and 2019

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Shareholders’ Equity

For the Three and Six Months Ended March 31,June 30, 2020 and 2019

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Statements of Cash Flows

For the ThreeSix Months Ended March 31,June 30, 2020 and 2019

(Unaudited)

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. In the opinion of the Company, the accompanying unaudited interim financial statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31,June 30, 2020 (unaudited) and December 31, 2019 (audited) and the results of operations and changes in cash flows for the indicated periods. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted from these unaudited financial statements in accordance with applicable rules. Please refer to the financial statements and notes thereto included in the Company’s Annual Report on Form10-K for the year ended December 31, 2019.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three monthand six-month period ended March 31,ending June 30, 2020 are not necessarily indicative of the results to be expected for the year.

2. The Company extends credit on the basis of terms that are customary within our markets to various companies doing business primarily in the automotive industry. The Company has a concentrationconcentrations of credit risk primarily within the automotive industry and in the Midwestern United States.

3. The Company is, from time to time, involved in litigation, including environmental claims and contract disputes, in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company’s financial position.

4. Revenue—The Company operates in the fastener industry and is in the business of manufacturing and selling rivets, cold-formed fasteners and parts, screw machine products, automatic rivet setting machines and parts and tools for such machines. Revenue is recognized when control of the promised goods or services is transferred to our customers, generally upon shipment of goods or completion of services, in an amount that reflects the consideration we expect to receive in exchange for those goods or services. For certain assembly equipment segment transactions, revenue is recognized based on progress toward completion of the performance obligation using a labor-based measure. Labor incurred and specific material costs are compared to milestone payments per sales contract. Based on our experience, this method most accurately reflects the transfer of goods under such contracts. During the firstsecond quarter of 2020, the Company had no such contracts.

Sales taxes we may collect concurrent with revenue producing activities are excluded from revenue. Revenue is recognized net of certain sales adjustments to arrive at net sales as reported on the statement of income. These adjustments primarily relate to customer returns and allowances. The Company records a liability and reduction in sales for estimated product returns based upon historical experience. If we determine that our obligation under warranty claims is probable and subject to reasonable determination, an estimate of that liability is recorded as an offset against revenue at that time. As of March 31,June 30, 2020 and December 31, 2019 reserves for warranty claims were not material. Cash received by the Company prior to shipment is recorded as unearned revenue.

Shipping and handling fees billed to customers are recognized in net sales, and related costs as cost of sales, when incurred.

Sales commissions are expensed when incurred because the amortization period is less than one year. These costs are recorded within selling and administrative expenses in the statement of income.

The following table presents revenue by segment, further disaggregated byend-market:

The following table presents revenue by segment, further disaggregated by location:

5. The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act allows for the carryback of any net operating loss arising in a tax year beginning after December 31, 2017 and before January 1, 2021, to each of the five tax years preceding the tax year in which the loss arises. As a result, the Company’s effective tax rate was approximately (29.2)% for the second quarter of 2020 compared to 21% for the second quarter of 2019. The Company’s effective tax rates were approximately 21.0%rate was (29.7)% and 22.0%21.6% for the first quarter ofsix months ended June 30, 2020 and 2019, respectively.

The Company’s federal income tax returns for the 2016 through 2019 tax years are subject to examination by the Internal Revenue Service (“IRS”). While it may be possible that a reduction could occur with respect to the Company’s unrecognized tax benefits as an outcome of an IRS examination, management does not anticipate any adjustments that would result in a material change to the results of operations or financial condition of the Company. No statutes have been extended on any of the Company’s federal income tax filings. The statute of limitations on the Company’s 2016 through 2019 federal income tax returns will expire on September 15, 2020 through 2023, respectively.

The Company’s state income tax returns for the 2016 through 2019 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2023. The Company is not currently under examination by any state authority for income tax purposes and no statutes for state income tax filings have been extended.

6. Inventories are stated at the lower of cost or net realizable value, cost being determined by thefirst-in,first-out method. A summary of inventories is as follows:

7. Segment Information—The Company operates in two business segments as determined by its products. The fastener segment includes rivets, cold-formed fasteners and parts rivets and screw machine products. The assembly equipment segment includes automatic rivet setting machines and parts and tools for such machines. Information by segment is as follows:

8. Subsequent Events—COVID-19—In March 2020, the World Health Organization characterized the novel coronavirus(“COVID-19”) a pandemic and the President of the United States declared theCOVID-19 outbreak a national emergency. The rapid spread of the virus and the evolving response domestically and internationally to combat it have had an increasinglya significant negative impact on the global economy, including the automotive industry upon which we rely for sales. Beginning in March, most states issued executive orders which temporarily closed businesses deemednon-essential in an effort to prevent the spread of the coronavirus. Similar measures also took place in certain foreign markets we serve. As a result, our operations and the operations of our customers and suppliers have been adversely affected. Since some of our customers are classified as essential businesses and have been ablewere allowed to continue to operate during this period, we have beenwere able to continue our operations, but at a significantly reduced level, in order to service those customers. Our automotive customers were particularly affected, as much of the sector was idled for an extended period of time during thesethe second quarter due to employee safety concerns. While most shut-down orders. We have taken measuresorders were lifted late in the second quarter, various work-related restrictions remain in place. Due to reduce expenses and conserve capital, given the rapidly changing business environment and heightened degree of uncertainty resulting fromCOVID-19, we have taken measures to reduce expenses and its related effects.conserve capital during this period, including reduced work schedules, delayed capital expenditures and a reduction in dividend payments. We have seen improved demand since government-imposed restrictions were relaxed, however the timing of any broad economic recovery is uncertain and will likely be tied to the course of the pandemic. As we cannot predict the duration or scope of theCOVID-19 pandemic, or its broader impact on the global economy, including the demand for automobiles, it is unknown how long theCOVID-19 restrictions will remain in place or what the impact ofCOVID-19 and its related effects will be on our business, results of operations or financial condition, but the impact could be material and last for an extended period of time.

CHICAGO RIVET & MACHINE CO.

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

Results of Operations

Net sales for the firstsecond quarter of 2020 were $7,576,455$4,103,520 compared to $8,621,678$8,875,451 in the firstsecond quarter of 2019, a decline of $1,045,223,$4,771,931, or 12.1%. The decline was primarily due to reduced demand for fastener segment parts, especially from automotive customers53.8%, as the impact of government-mandated business closures due to the novel coronavirus pandemic(“COVID-19”) took hold.pandemic severely limited demand for our products. For the first half of 2020, net sales totaled $11,679,975 compared to $17,497,129 in the first half of 2019, a decline of $5,817,154, or 33.2%. Although we acted swiftly to reduce expenses in response to the sudden drop in demand, cost reductions were not sufficient to offset the effects of the decline in sales. The lower sales resulted inresult was a net loss for the second quarter of 2020 of $779,516, or $0.81 per share, compared to net income of $56,568,$229,559, or $0.06$0.24 per share, in the second quarter of 2019. The net loss for the first half of 2020 was $722,948, or $0.75 per share, compared to net income of $516,401, or $0.54 per share, in the first quarterhalf of this year compared to $286,842, or $0.30 per share, in the first quarter of 2019. During the quarter, a regular quarterly dividend of $0.22 per share was paid.

Fastener segment revenues were $6,737,397$3,513,742 in the firstsecond quarter of 2020 compared to $7,579,120$7,816,704 reported in the firstsecond quarter of 2019, a decline of $841,723,$4,302,962, or 11.1%55.0%. For the first six months of 2020, fastener segment revenues were $10,251,139 compared to $15,395,824 in the first half of 2019, a decline of $5,144,685, or 33.4%. The automotive sector is the primary market for our fastener segment products and much of that sector was idled for an extended period of time during the second quarter due to the COVID-19 pandemic. As a result, fastener segment sales to automotive customers were $4,413,737declined $3,302,550, or 67.7%, in the second quarter and $3,607,029, or 37.6%, in the first half of 2020 compared to the prior year periods. Although some of our non-automotive customers were allowed to remain open during the second quarter thisas essential businesses, sales to non-automotive customers also experienced significant reductions and declined $1,000,412, or 34.1%, in the second quarter and $1,537,656, or 26.5%, in the first half of the current year compared to $4,718,215the prior year periods. In response to the reduced demand for our products, we have taken steps to reduce expenses where practicable, including reductions in staffing and work schedules. Even though we reduced all major categories of manufacturing costs, these savings did not fully offset the decline in sales volume, resulting in a $1,259,211 reduction in fastener segment gross margin in the firstsecond quarter and a $1,492,445 reduction in the year to date amount, compared to the year earlier periods

Assembly equipment segment revenues were $589,778 in the second quarter of 2020 compared to $1,058,747 in the second quarter of 2019, a decline of $304,478,$468,969, or 6.5%44.3%. This compares favorably toFor the first quarter decline in U.S. light-vehicle saleshalf of 12.5%. Fastener segment sales2020, assembly equipment revenues were $1,428,836 compared tonon-automotive customers were $2,323,660 in $2,101,305 for the first quarter of this year compared to $2,860,905 in the first quarterhalf of 2019, a decline of $537,245$672,469, or 18.8%32.0%. The rapid spreaddecline in sales during the second quarter and the year to date was primarily due to the broad effects of the coronavirusCOVID-19 pandemic, but also due to the inclusion of certain high-dollar value machine orders in the second quarter of 2019. The reduction in revenue was the primary factorcause of the decline in the lower sales reported in the first quarter as nearly all the markets we serve were negatively impacted. Fastener segment production costs in the first quarter were lower than a year earlier, with variable costs remaining consistent as a percentage of net sales with the first quarter of 2019, however, our fixed production costs were little changed which resulted in lowerassembly equipment segment gross margins due to $110,314 in the lower levelsecond quarter of sales. Fastener segment2020 from $328,923 in the second quarter of 2019. For the first half of the year, gross margins were $1,091,951 in the first quarter of 2020$328,789 compared to $1,325,186$665,500 in the first quarter of 2019, a reduction of $233,235.

Assembly equipment segment revenues were $839,058 in the first quarter of 2020 compared to $1,042,558 in the first quarter of 2019, a decline of $203,500, or 19.5%. The lower sales in the current year is primarily due to fewer machines being shipped compared to the comparable year earlier quarter as the combination of a slowing economy and the coronavirus pandemic resulted in reduced demand. The decline in net sales contributed to a $118,101 decrease in segment gross margin from $336,577 in 2019 to $218,476 in 2020.$336,711.

Selling and administrative expenses duringfor the firstsecond quarter of 2020 were $1,285,334$1,214,423, a decline of $92,242, or 7.1%, compared to $1,342,696 recorded inwith the firstyear earlier quarter total of 2019, a decrease of $57,362, or 4.3%.$1,306,665. The decline was primarily due to a $20,000 reduction in profit sharing expense related to lower operating profit in the current year quarter and a $17,000$100,000 reduction in sales commissions due to lower sales and reductions of $30,000 and $25,000 related to salaries and outside services, respectively, during the dropquarter. These reductions were partially offset by a $53,000 increase in consulting fees related to an ERP system update. The net sales. Compareddifference was related to net sales,various smaller items. For the first six months of 2020, selling and administrative expenses were 17.0%$2,499,757 compared to $2,649,361 in 2019, a decline of $149,604, or 5.6%. As in the second quarter, expenditures for the first half of 2020 were lower primarily due to a reduction in commissions of approximately $117,000 and reductions of $40,000 and $30,000 related to salaries and outside services, respectively. These reductions were partially offset by a $44,000 increase in consulting expense. Various smaller items made up the remaining difference. Selling and administrative expenses as a percentage of net sales for the first half of 2020 were 21.4% compared to 15.1% in the first quarter of 2020 compared to 15.6% in the first quarterhalf of 2019.

Other Income

Other income in the firstsecond quarter of 2020 was $46,475$43,757, compared to $48,775$49,254 in the second quarter of 2019. Other income for the first six months of 2020 was $90,232, compared to $98,029 in the first quartersix months of 2019. The decrease isdeclines were primarily relateddue to a reduction in interest income on certificates of deposit due to lower interest rates in the current year.

Income Tax Expense

The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020. The CARES Act allows for the carryback of any net operating loss arising in a tax year beginning after December 31, 2017 and before January 1, 2021, to each of the five tax years preceding the tax year in which the loss arises. As a result, the Company’s effective tax rates wererate was approximately 21.0% and 22.0%(29.2)% for the firstsecond quarter of 2020 compared to 21% for the second quarter of 2019. The Company’s effective tax rate was (29.7)% and 21.6% for the six months ended June 30, 2020 and 2019, respectively.

Liquidity and Capital Resources

Working capital amounted to approximately $16.4at June 30, 2020 was $15.8 million, asa decrease of March 31, 2020, relatively unchanged$0.7 million from the beginning of the year. During the quarter,The decline was primarily due to a $1.1 million drop in accounts receivable increased by $0.9 million due to the greatersevere decline in sales activity during the quarter comparedsecond quarter. Due to the fourthuncertain outlook, the quarterly dividend was reduced from $0.22 per share to $0.10 per share in the second quarter of 2019. Partially offsetting this change was a $0.4 million increase in accounts payable since the beginning of the year relatedand capital expenditures were reduced to the greater level of operating activity during$255,352 for the first quarter. Other items impacting working capitalhalf of 2020 from $1,283,736 in the first quarter were capital expenditureshalf of $0.2 million, which consisted of equipment used2019, in fastener production activities, and dividends paid of $0.2 million.order to conserve cash. The net result of these changes and other cash flow activity was to leave cash, cash equivalents and certificates of deposit at $7.1$8.1 million as of March 31,June 30, 2020 compared to $8.0$8 million as ofat the beginning of the year. Management believes that current cash, cash equivalents and operating cash flow will provide adequate working capital for the next twelve months.

CHICAGO RIVET & MACHINE CO.

Item 1A. Risk Factors

There have been no material changes in risk factors from those previously disclosed in our Annual Report on Form10-K for the fiscal year ended December 31, 2019, other than the addition of the following risk factor regarding the recent coronavirus outbreak:

The recent coronavirus outbreak is having, and is expected to have, an adverse effect on us.

In March 2020, the World Health Organization characterized the novel coronavirus(“COVID-19”) a pandemic and the President of the United States declared theCOVID-19 outbreak a national emergency. The rapid spread of the virus and the evolving response domestically and internationally to combat it have had an increasingly negative impact on the global economy, including the automotive industry upon which we rely for sales. During the first quarter, various states issued executive orders which temporarily closed businesses deemednon-essential as the coronavirus outbreak spread. Similar measures also took place in certain foreign markets we serve. As a result, our operations and the operations of our customers and suppliers have been adversely affected. Since some of our customers are classified as essential businesses and have been able to continue to operate, we have been able to continue our operations, but at a significantly reduced level. As we cannot predict the duration or scope of theCOVID-19 pandemic or its broader impact on the global economy, including the demand for automobiles, it is unknown how longCOVID-19 related restrictions will remain in place or what the impact ofCOVID-19 and its related effects will be on our business, results of operations or financial condition, but the impact could be material and last for an extended period of time.

Additionally, the impacts described above and other impacts of theCOVID-19 pandemic and responses to it may substantially increase the risk to us from other risks described in our Annual Report on Form10-K for the fiscal year ended December 31, 2019.

Item 4. Controls and Procedures.

(a) Disclosure Controls and Procedures. The Company’s management, with the participation of the Company’s Chief Executive Officer and President, Chief Operating Officer and Treasurer (the Company’s principal financial officer), has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and President, Chief Operating Officer and Treasurer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

(b) Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 6. Exhibits

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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