UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM10-Q

(Mark One)

For the quarterly period ended March 31,September 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 and posted 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,November 2, 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,September 30, 2020 and December 31, 2019

See Notes to the Condensed Consolidated Financial Statements

CHICAGO RIVET & MACHINE CO.

Condensed Consolidated Balance Sheets

March 31,September 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 Nine Months Ended March 31,September 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 Nine Months Ended March 31,September 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 ThreeNine Months Ended March 31,September 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,September 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 nine-month period ended March 31,ending September 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 concentration 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 first quarter of 2020, the Company has 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,September 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 Company’s effective tax rates were approximately 21.0%25.4% and 22.0%23.9% for the firstthird quarter of 2020 and 2019, respectively. 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 (32.7)% for the nine months ended September 30, 2020 compared to 22.5% for the nine months ended September 30, 2019.

The Company’s federal income tax returns for the 2016 through2017, 2018 and 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 through2017, 2018 and 2019 federal income tax returns will expire on September 15, 2020 through2021, 2022 and 2023, respectively.

The Company’s state income tax returns for the 20162017 through 2019 tax years remain subject to examination by various state authorities with the latest closing period on October 31, 2023. The Company is currently 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 cold-formed 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 firstthird quarter of 2020 were $7,576,455$7,645,259 compared to $8,621,678$8,188,905 in the firstthird quarter of 2019, a decline of $1,045,223,$543,646, or 12.1%6.6%. TheAs of September 30, 2020, year to date sales totaled $19,325,234 compared to $25,686,034, for the first three quarters of 2019, a decline of $6,360,800, or 24.8%. While third quarter sales have improved 86.3% compared to the preceding quarter, demand from our customers continues to be negatively impacted by the COVID-19 pandemic. Net income for the third quarter of 2020 was primarily due$309,135, or $0.32 per share, compared to reduced demand for fastener segment parts, especially from automotive customers as the impact of the coronavirus pandemic(“COVID-19”) took hold. The lower sales resulted in net income of $56,568,$315,797, or $0.06$0.32 per share, in the first quarter of this year compared to $286,842, or $0.30 per share, in the firstthird quarter of 2019. DuringNet loss for the quarter, a regular quarterly dividendfirst three quarters of $0.222020 was $413,813, or $0.43 per share, was paid.compared with net income of $832,198, or $0.86 per share, reported in 2019.

Fastener segment revenues were $6,737,397$7,024,416 in the firstthird quarter of 2020 compared to $7,579,120$7,306,895 in the firstyear earlier quarter, of 2019, a decline of $841,723,$282,479, or 11.1%3.9%. 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. The resumption of operations in the automotive sector led to an increase in sales to our automotive customers of $3,082,963, or 195.4%, during the third quarter compared to the preceding quarter. Sales to our non-automotive customers, where COVID-related shut downs were not as widespread, also improved in the third quarter, increasing $427,711, or 22.1%, compared to the second quarter. For the first three quarters of 2020, fastener segment revenues were $17,275,555 compared to $22,702,719 in 2019, a decline of $5,427,164, or 23.9%. Sales to automotive customers were $4,413,737have declined $3,642,931, or 25.5%, year to date while sales to non-automotive customers have declined $1,784,233, or 21.2%, compared to the previous year. The year to date decline is primarily related to the COVID-19 pandemic and the resultant economic recession. The rebound in fastener segment demand in the firstthird quarter thiscombined with cost savings measures taken earlier in the year resulted in an improvement in fastener segment gross margins of $165,608 compared to $4,718,215the third quarter of 2019. Year to date, gross margins have declined $1,326,837 compared to last year as reductions in all major categories of manufacturing costs were not able to offset the dramatic decline in sales brought about by the pandemic.

Assembly equipment segment revenues were $620,843 in the firstthird quarter of 2020 compared to $882,010 in the third quarter of 2019, a decline of $304,478,$261,167, or 6.5%29.6%. This compares favorably toFor the first quarter decline in U.S. light-vehicle salesnine months of 12.5%. Fastener2020, assembly equipment segment sales tonon-automotive customers were $2,323,660 in the first quarter of this year$2,049,679 compared to $2,860,905$2,983,315 for the same period in the first quarter of 2019, a decline of $537,245$933,636, or 18.8%31.3%. The rapid spreaddecline in sales during the third 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 2019. The reduction in revenue was the primary factorcause of the decline in assembly equipment segment gross margins to $160,841 in the third quarter of 2020 from $335,723 in the third quarter of 2019. For the first three quarters of the year, gross margins were $489,630 compared to $1,001,223 in 2019, a decline of $511,593.

Selling and administrative expenses for the third quarter of 2020 were $1,258,995 compared to $1,282,149 in the year earlier quarter, a decline of $23,154, or 1.8%. The net decline was primarily due to a reduction in profit sharing and compensation expenses of $24,000 and $14,000, respectively. These reductions were partially offset by an increase in consulting expenses related to an ERP system upgrade. Selling and administrative expenses for the first three quarters of 2020 were $3,758,752 compared to $3,931,510 for the same period of 2019, a reduction of $172,758, or 4.4%. While consulting expenses have increased $61,000 year to date related to an ERP system upgrade, this was more than offset by a $120,000 reduction in sales commissions, due to lower sales, reportedand a $54,000 reduction 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 consistentcompensation expense and other smaller expense reductions. Selling and administrative expenses as a percentage of net sales withfor the first quarternine months of 2019, however, our fixed production costs were little changed which resulted in lower segment gross margins due2020 was 19.4% compared to the lower level of sales. Fastener segment gross margins were $1,091,951 in15.3% for the first quarter of 2020 compared to $1,325,186 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.

Selling and administrative expenses during the first quarter of 2020 were $1,285,334 compared to $1,342,696 recorded in the first quarter of 2019, a decrease of $57,362, or 4.3%. 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 reduction in sales commissions due to the drop in net sales. Compared to net sales, selling and administrative expenses were 17.0% in the first quarter of 2020 compared to 15.6% in the first quarternine months of 2019.

Other Income

Other income in the firstthird quarter of 2020 was $46,475$32,637 compared to $48,775$47,179 in the firstthird quarter of 2019. The decrease isOther income for the first three quarters of 2020 was $122,869 compared to $145,208 in the same period of 2019. Other income consists primarily related to a reduction inof interest income on certificates of depositdeposit. The decreases were primarily due to lower interest rates in the current year.year compared to the year earlier periods.

Income Tax Expense

The Company’s effective tax rates were approximately 21.0%25.4% and 22.0%23.9% for the firstthird quarter of 2020 and 2019, respectively. 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 (32.7)% for the nine months ended September 30, 2020 compared to 22.5% for the nine months ended September 30, 2019.

Liquidity and Capital Resources

Working capital amounted to approximately $16.4 million as of March 31,September 30, 2020 relatively unchangedwas $16.2 million, a decrease of $0.3 million from the beginning of the year. During the quarter, accounts receivable increased by $0.9 million dueIn an effort to conserve capital during to the greater sales activity duringpandemic, the quarterly dividend was reduced from $0.22 per share to $0.10 per share in the second quarter comparedand capital expenditures have been reduced to $375,657 for the fourth quarterfirst nine months of 2020 from $1,562,784 in the same period of 2019. Partially offsetting this change was a $0.4 million increaseThese actions have helped to offset the decline in accounts payable since the beginning ofcapital caused by the year related to the greater level ofdate operating activity during the first quarter. Other items impacting working capital in the first quarter were capital expenditures of $0.2 million, which consisted of equipment used in fastener production activities, and dividends paid of $0.2 million.loss. The net result of these changes and other cash flow activityitems was to leave cash, cash equivalents and certificates of deposit at $7.1$7.5 million as of March 31,September 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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