FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d) of
The Securities Exchange Act of 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 14 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT OR SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-7770
McCLAIN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Michigan 38-1867649
State of Incorporation IRS Employer I.D. No.
6200 Elmridge Road
Sterling Heights, Michigan 48310
(810) 264-3611
(Address of principal executive offices and telephone number)
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 _X_. No ___.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of August 13, 2002.
Common Stock, No Par Value 4,549,326
- --------------------------------------------------------------------------------
Class Number of Shares
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS JUNE 30 SEPTEMBER 30,
2002 2001
(UNAUDITED)
------------------------ ----------------------
CURRENT ASSETS
Cash and cash equivalents $1,669,115 $763,635
Accounts receivable, (Net) 11,985,913 11,818,760
Inventories 25,149,837 36,729,464
Net investment in sales-type leases, current portion 7,400,000 10,600,000
Prepaid expenses 374,227 142,539
Refundable federal and state income taxes 927,067 2,733,572
------------------------ ----------------------
TOTAL CURRENT ASSETS 47,506,159 62,787,970
------------------------ ----------------------
PROPERTY, PLANT AND EQUIPMENT, NET 20,028,561 21,620,641
------------------------ ----------------------
NET INVESTMENT IN SALES-TYPE LEASES, NET OF
CURRENT PORTION 14,434,900 17,200,109
------------------------ ----------------------
OTHER ASSETS 614,587 1,037,555
------------------------ ----------------------
TOTAL OTHER ASSETS $ 82,584,207 $ 102,646,275
======================== ======================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES
Accounts payable $6,495,722 $11,555,975
Current portion of long-term debt 48,239,697 59,415,504
Accrued expenses 3,663,728 4,225,970
------------------------ ----------------------
TOTAL CURRENT LIABILITIES 58,399,147 75,197,449
Long-term debt, net of current portion 0 0
Product liability 437,407 897,163
Deferred income taxes 582,000 1,546,000
------------------------ ----------------------
TOTAL LIABILITIES 59,418,554 77,640,612
------------------------ ----------------------
STOCKHOLDERS' INVESTMENT 23,165,653 25,005,663
------------------------ ----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $82,584,207 $102,646,275
======================== ======================
See notes to condensed consolidated financial statements
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MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30 JUNE 30,
---------------------------------------- -----------------------------------------
2002 2001 2002 2001
------------------ ------------------ ------------------ ------------------
Net sales $ 19,206,575 $ 26,767,566 $ 56,070,889 $ 72,603,887
Cost of sales 16,745,133 22,824,779 48,532,504 61,526,096
Inventory writedown 0 0 0 700,000
------------ ------------ ------------ ------------
GROSS PROFIT 2,461,442 3,942,787 7,538,385 10,377,791
Selling, general and administrative
expenses 3,340,499 3,778,242 9,568,624 12,251,872
Restructuring charge 0 0 0 400,000
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS -879,057 164,545 -2,030,239 -2,274,081
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (1,091,558) (1,362,938) (2,864,959) (4,213,685)
Interest income 615,779 794,956 1,978,906 2,433,577
Other, net 478 145,551 79,786 84,513
------------ ------------ ------------ ------------
OTHER EXPENSE - NET (475,301) (422,431) (806,267) (1,695,595)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (1,354,358) (257,886) (2,836,506) (3,969,676)
Income taxes (benefit) (460,000) (88,000) (964,000) (1,350,000)
------------ ------------ ------------ ------------
NET LOSS $ (894,358) $ (169,886) $ (1,872,506) $ (2,619,676)
============ ============ ============ ============
Net loss per share:
Basic $ (0.20) $ (0.04) $ (0.41) $ (0.58)
============ ============ ============ ============
Assuming dilution $ (0.20) $ (0.04) $ (0.41) $ (0.58)
============ ============ ============ ============
See notes to condensed consolidated financial statements
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MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
NINE MONTHS ENDED
JUNE 30,
------------------------------------------------
2002 2001
----------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,872,506) $ (2,619,676)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities
Depreciation and amortization 2,115,901 2,512,184
Deferred income tax benefit (964,000) --
Common stock issued to directors for services 32,496 25,487
Net changes in operating assets and liabilities
which provided (used) cash:
Current assets excluding cash & cash equivalents 11,180,786 14,922,490
Other assets 6,271,104 (1,096,947)
Accounts payable (5,060,253) (5,561,046)
Accrued expenses (562,242) 506,111
Federal and state income taxes 1,806,505 (1,630,227)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 12,947,791 7,058,376
------------ ------------
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of plant and equipment (406,748) (152,828)
Payments made on liabilities assumed upon the
Galion acquisition (459,756) (480,512)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (866,504) (633,340)
------------ ------------
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal decrease of long term debt (11,175,807) (6,215,618)
Repurchase of common stock -- (241,238)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (11,175,807) (6,456,856)
------------ ------------
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 905,480 (31,820)
------------ ------------
Cash and cash equivalents, beginning of period 763,635 1,401,810
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,669,115 $ 1,369,990
============ ============
See notes to condensed consolidated financial statements
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2002
1. Basis of Presentation
The accompanying unaudited Consolidated Financial Statements of McClain
Industries, Inc. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, such Statements do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments consisting only of normal recurring
items and the operating charge described in Note 7, considered
necessary for a fair presentation have been included. Operating results
for the nine-month period ended June 30, 2002 are not necessarily
indicative of the results that may be expected for the year ending
September 30, 2002. For further information, refer to the Consolidated
Financial Statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended September 30, 2001.
2. Inventories
Inventories at June 30, 2002 and September 30, 2001 are summarized as
follows:
(Unaudited)
June 30, 2002 September 30, 2001
-------------------------------------------------
Materials and Supplies $ 12,239,789 $ 16,136,116
Work in Process 4,300,000 4,306,681
Finished Goods 5,700,000 8,583,582
Chassis 2,910,048 7,703,085
--------------- ---------------
$ 25,149,837 $ 36,729,464
--------------- ---------------
3. Earnings per Common Share and Common Equivalent Share:
Earnings per share are computed using the weighted average number of
common shares outstanding during the periods, including a dual
presentation and reconciliation of "basic" and "diluted" per share
amounts. Diluted reflects the potential dilution of all common stock
equivalents. At June 30, 2002 and 2001 options to purchase 177,000 and
149,983 shares, respectively, were excluded from the computation of
earnings per share because the options' exercise prices were greater
than the average market price of the common shares.
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McCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2002
4. Depreciation
For the nine months ended June 30, 2002 and 2001, depreciation charges
were $1,998,828 and $2,111,053, respectively. Accumulated depreciation
totaled 27,485,079 and $25,353,719 at June 30, 2002 and September 30,
2001, respectively.
5. Contingencies
Product Liability
As a manufacturer of industrial products, the Company is occasionally
subjected to various product liability claims. Such claims typically
involve personal injury or wrongful death associated with the use or
misuse of the Company's products. The Company is currently defending
certain legal proceedings involving allegations of product liability
relating to products manufactured and sold by the Company.
Historically, such claims have not resulted in material losses to the
Company in any one year, and the Company maintains product liability
insurance in amounts believed by management to be adequate.
McClain E-Z Pack, Inc., as successor to Galion Holding Company (GHC),
pursuant to an indemnification it provided to the seller in connection
with GHC's July 1992 acquisition of the Galion operations, is currently
defending a number of legal proceedings involving product liability
claims arising out of products manufactured and sold prior to the
acquisition. These claims are covered by insurance and many of these
cases have been settled. In addition, the acquisition agreement called
for the seller to share in the payment of certain costs related to the
defense of these cases. On December 29, 1998 the Company reached a
settlement agreement with the seller, the terms of which called for the
Company to release the seller from its obligations related to product
liability claims under the Galion acquisition agreement in exchange for
a cash payment of $1,050,000.
A reserve to provide for these product claims was established at the
acquisition date. Since many of the cases have been settled and
insurance coverage exists, management believes that the ongoing costs
to defend these claims will not exceed the amount accrued on the
accompanying consolidated balance sheet at June 30, 2002. Nevertheless,
it is not possible to predict the ultimate outcome of any product
liability claim, and any such claim not fully covered by insurance, as
well as adverse publicity from a product claim, could have a material
adverse effect on the Company.
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2002
Environmental Matters
The Company's operations are subject to extensive federal, state and
local regulation under environmental laws and regulations concerning,
among other things, emissions into the air, discharges into the waters
and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. Inherent in manufacturing
operations and in owning real estate is the risk of environmental
liabilities as a result of both current and past operations, which
cannot be predicted with certainty. The Company has incurred and will
continue to incur costs, on an ongoing basis, associated with
environmental regulatory compliance in its business.
Labor Union Matters
Certain of the Company's hourly employees are represented by various
labor unions pursuant to collective bargaining agreements which expire
between September 2002 and June 2003.
In 1995, a local union filed unfair labor practices against the
Company's Macon, Georgia plant, which were subsequently upheld by the
National Labor Relations Board (NLRB) and the U.S. Court of Appeals.
The local union filed additional unfair labor practices in 1996. The
NLRB seeks back pay, reinstatement and an order requiring transfer of
work. The Company reached an agreement with the NLRB regarding the back
pay and reinstatement issues in February 2002. The agreement calls for
the Company to make payments of approximately $600,000 in quarterly
installments over three years, beginning in March of 2002. A reserve
was set up at September 30, 2001 to cover the costs of this agreement.
The Company is currently negotiating with the NLRB in an effort to
reach a settlement of the remaining matter. There can be no assurance
that that claim will be settled or that any amounts awarded to the
union will not have a material adverse impact on the Company.
Other Legal Matters
The Company is also involved in routine litigation incidental to its
business. Management believes that the resolution of these matters will
not materially affect the consolidated financial statements.
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MCCLAIN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2002
.
7. Other Matters
The Company recorded a $1,100,000 charge against operations in March
2001 primarily related to the reduction of certain truck chassis to
their estimated realizable value and for various severance packages for
terminated employees.
8. Segment Information
The Company operates in three principal operating segments 1)
Manufactured Equipment, 2) Truck Chassis Sales, and 3) Leasing
Operations. Management evaluates the performance of its operating
segments separately to individually monitor the different factors
affecting performance. The Company measures the performance of its
operating segments based on net revenue and operating income. Income
taxes are managed on a Company-wide basis. Segment performance is also
evaluated based on profit or loss before income taxes.
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MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2002
Information regarding the Company's operating segments follows for the three
months ended June 30, 2002 and 2001 follows:
Manufacturing Truck Leasing
Operations Group Operations Totals
------------------ ------------------- ----------------- -------------------
2002
----
Net sales $ 15,935,619 $ 3,270,956 $ - $ 19,206,575
Lease revenues - - 1,546,795 1,546,795
Operating income (loss) (751,357) (61,693) (66,007) (879,057)
Interest expense, net 575,249 87,284 429,025 1,091,558
Income (loss) before
income taxes (1,309,107) (149,813) 104,562 (1,354,358)
Identifiable assets 58,170,077 2,579,230 21,834,900 82,584,207
Capital expenditures 38,298 - - 38,298
Depreciation and
amortization $ 683,263 $ - $ - $ 683,263
2001
----
Net sales $ 18,361,450 $ 8,406,116 $ - $ 26,767,566
Lease revenues - - 2,071,761 2,071,761
Operating income (loss) (256,283) 245,122 175,706 164,545
Interest expense, net 774,361 211,124 377,453 1,362,938
Income (loss) before
income taxes (600,667) 30,450 312,331 (257,886)
Identifiable assets 75,308,476 7,278,536 26,511,409 109,098,421
Capital expenditures 152,828 - - 152,828
Depreciation and
amortization $ 846,212 $ - $ - $ 846,212
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MCCLAIN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 2002
Information regarding the Company's operating segments follows for the nine
months ended June 30, 2002 and 2001 follows:
Manufacturing Truck Leasing
Operations Group Operations Totals
------------------- ------------------- ----------------- -------------------
2002
----
Net sales $ 47,736,136 $ 8,334,753 $ - $ 56,070,889
Lease revenues - - 5,193,904 5,193,904
Operating income (loss) (2,580,900) (32,017) 582,678 (2,030,239)
Interest expense, net 1,443,096 316,402 1,105,461 2,864,959
Income (loss) before
income taxes (3,138,135) (350,688) 652,317 (2,836,506)
Identifiable assets 58,170,077 2,579,230 21,834,900 82,584,207
Capital expenditures 406,748 - - 406,748
Depreciation and
amortization $ 2,115,901 $ - $ - $ 2,115,901
2001
----
Net sales $ 52,660,079 $19,943,808 $ - $ 72,603,887
Lease revenues - - 5,786,757 5,786,757
Operating income (loss) (2,424,787) (673,685) 824,391 (2,274,081)
Interest expense, net 2,369,966 657,309 1,186,410 4,213,685
Income (loss) before
income taxes (3,593,556) (1,337,136) 961,016 (3,969,676)
Identifiable assets 75,302,476 7,278,536 26,517,409 109,098,421
Capital expenditures 152,828 - - 152,828
Depreciation and
amortization $ 2,512,184 $ - $ - $ 2,512,184
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MCCLAIN INDUSTRIES, INC.
ITEM TWO. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Overview
The following discussion should be read in conjunction with the
condensed consolidated financial statements, including the notes
thereto, appearing elsewhere in this report.
Selected financial data for the Company for the periods indicated:
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Net Sales $ 19,206,575 $ 26,767,566 $ 56,070,889 $ 72,603,887
Net Loss (894,358) (169,886) (1,872,506) (2,619,676)
Net Loss Per Common
Share (Basic and Diluted) $ (.20) (.04) $ (.41) $ (.58)
(Unaudited)
As of As of
June 30, September 30,
2002 2001
---------------- ------------------
Working Capital (Deficit) $ (10,892,988) $ (12,409,479)
Total Assets 82,584,207 102,646,275
Long-Term Debt 0 0
Stockholders' Investment 23,165,653 25,005,663
Common shares outstanding
(Basic and Diluted) 4,549,326 4,565,661
Current Ratio 0.81:1 0.83:1
Funded Debt to Equity
Stockholders' Investment 2.08:1 2.37:1
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MCCLAIN INDUSTRIES, INC.
The following table presents, as a percentage of net sales, certain selected
financial data for the Company for the periods indicated:
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2002 2001 2002 2001
------------------------- ---------------------------
Net Sales 100.00% 100.00% 100.00% 100.00%
Cost of Sales 87.18 85.28 86.56 84.74
Inventory Writedown 0.00 0.00 0.00 0.96
--------- --------- --------- ---------
Gross Profit 12.82 14.72 13.44 14.30
Selling, General &
Administrative Expenses 17.39 14.11 17.07 16.88
Restructuring charge 0.00 0.00 0 0.55
--------- --------- --------- ---------
Operating Income (Loss) ( 4.57) .61 ( 3.63) ( 3.13)
Other Expenses ( 2.48) ( 1.58) ( 1.43) ( 2.34)
--------- --------- --------- ---------
Loss before Income Taxes ( 7.05) (0 .97) ( 5.06) ( 5.47)
Income (Taxes) Benefit 2.40 0.33 1.72 1.86
--------- --------- --------- ---------
Net Loss ( 4.65)% (0.64)% ( 3.34)% (3.61)%
--------- --------- --------- ---------
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MCCLAIN INDUSTRIES, INC.
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
Net sales decreased 28.2% to $19.2 million for the quarter ended June
30, 2002 (Quarter 2002) from $26.7 million for the quarter ended June 30, 2001
(Quarter 2001). The decrease was due primarily to slumping sales resulting from
the continuing slow down in the manufacturing sector of the economy. McClain E-Z
Pack's sales decreased 26.9% or $4.2 million during the Quarter 2002 compared to
the Quarter 2001 while McClain Truck sales decreased 64.4% or $4.1 million
during the Quarter 2002 compared to the Quarter 2001. These decreases were the
result of the current economic slowdown and limited capital expenditures in the
hauling industry. Sales of the Company's dump body products increased by 13.4%
or $.5 million for the Quarter 2002 compared to the Quarter 2001 but remained
well below historical levels due to excess production capacity in the dump body
markets. The sales of the McClain Truck division accounted for 11.8% of the
Company's sales for the Quarter 2002 compared to 23.7% of the Company's sales
for the Quarter 2001.
Cost of goods sold increased to 87.2% for the Quarter 2002 from 85.3%
for the Quarter 2001 due to the lower sales volume. The gross profit margin on
manufactured products increased to 15.7% for the Quarter 2002 compared to 14.3%
for the Quarter 2001 due primarily to cost cutting measures the Company
implemented. The McClain Truck division had a gross loss of 6.2% for the Quarter
2002 compared to a gross margin of 8.7% for the Quarter 2001.
Selling, General & Administrative Expenses increased to 17.4% of net
sales for the Quarter 2002 from 14.1% of net sales for the Quarter 2001 due
primarily the lower sales volume.
The Company had a Net Loss of 4.65% of sales for the Quarter 2002
compared to a Net loss .64% of sales for the Quarter 2001. The loss was due
primarily to reduced sales volumes.
Net sales decreased 22.8% to $56.1 million for the nine months ended
June 30, 2002 (nine months 2002) from $72.6 million for the nine months ended
June 30, 2001 (nine months 2001). The decrease was due primarily to slumping
sales resulting from the continuing slow down in the manufacturing segment of
the economy. McClain E-Z Pack's sales decreased 21.8% or $9.5 million during the
nine months 2002 compared to the nine months 2001 while McClain Truck sales
decreased 59.8% or $8.8 million during the nine months 2002 compared to the nine
months 2001. These decreases were the result of the continuing economic slowdown
and limited capital expenditures in the hauling industry. Sales of the Company's
dump body products increased by 5.5% or $.6 million for the nine months 2002
compared to the nine months 2001 but remained well below historical levels due
to the excess production capacity in the dump body markets. The sales of the
McClain Truck division accounted for 10.5% of the Company's sales for the nine
months 2002 compared to 20.2% of the Company's sales for the nine months 2001.
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Cost of goods sold increased to 86.6% for the nine months 2002 from
84.7% for the nine months 2001 due to the lower sales volume and an increase in
the percentage of chassis sales to total sales. The gross profit margin on
manufactured products decreased to 15.8 for the nine months 2002 compared to
19.2% for the nine months 2001. The McClain Truck division had a gross loss of
3.9% for the nine months 2002 compared to a gross loss of .5% for the nine
months 2001.
Selling, General & Administrative Expenses increased to 17.1% of net
sales for the nine months 2002 from 16.9% of net sales for the nine months 2001
as a result of the lower sales volume.
The Company had a Net Loss of 3.34% of sales for the nine months 2002
compared to a Net Loss of 3.61% of sales for the nine months 2001. The loss was
due primarily to reduced sales volumes.
The Company had negative working capital of $10.9 million at June 30,
2002 compared to negative working capital of $12.4 million at September 30, 2001
(see subsequent discussion regarding the Company's debt agreements). The ratio
of current assets to current liabilities was 0.81:1 at June 30, 2002 and .83:1
at September 30, 2001. The Company's cash and cash equivalents totaled $1.7
million at June 30, 2002. Cash flows provided by operations were $12.9 million
for the nine months ended June 30, 2002.
The Company's debt agreements contain certain restrictive covenants
that require the Company to, among other things, meet certain net worth and
working capital requirements along with maintaining various financial ratios. As
the result of non compliance with certain of the financial covenants, the
Company entered into a forbearance agreement with its principal lending
institution in June of 2001 and expiring August 31, 2001. This agreement was
extended to October 31, 2001, January 31, 2002, May 1, 2002, July 1, 2002,
August 1, 2002, and has currently been extended to December 1, 2002. Under the
most recent amended and extended forbearance agreement, the line of credit is
capped at $20 million, with interest accruing at the default rate of prime plus
4 1/2%, the leasing credit limit has been capped at $14.25 million and the
Company has been placed under a dominion of funds arrangement. Accordingly, the
debt related to these agreements has been shown as a current liability.
Management's plans to resolve this matter include, exploring other financing
options while continuing to negotiate with its principal lender to extend the
forbearance period or amend its current agreements to among other things reset
those covenants that are currently out of compliance and extend the maturity
dates on certain of its revolving credit agreements, continuing to evaluate the
need for additional personnel reductions, analyzing all plant operations and
product lines to determine the viability of each facility, and continuing
inventory reductions to match forecasted operating levels. While management
believes it will be successful in its negotiations with it principal lender or
in obtaining an alternative financing source, that outcome is not certain. If
either of these options are ultimately unavailable to the Company and the
principal lender exercises it right to accelerate the repayment of the
outstanding debt, the Company would be unable to pay the amount outstanding. The
revolving credit agreements expired in May 2002.
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Management believes, that if its principal lender does not chose to
accelerate its right to payment, the negotiations discussed above are successful
or the Company secures an alternative financing source, that the Company's cash
flow, together with the credit available to it under existing debt facilities,
will provide it with adequate cash for its working capital needs for the next 12
months (For further information on the Company's debt agreements, refer to the
Consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended September 30, 2001). If
these options are ultimately unavailable to the Company and the principal lender
exercises it right to accelerate the repayment of the outstanding debt, the
Company would be unable to pay the amount outstanding.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
McCLAIN INDUSTRIES, INC.
Date: August 13, 2002 By: /s/ Kenneth D. McClain
-------------------------------------------- -----------------------------------
Kenneth D. McClain, President
Date: August 13, 2002 By: /s/ Mark S. Mikelait
----------------------------------------------- --------------------------------------
Mark S. Mikelait, Treasurer
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SIGNATURES
The undersigned officers hereby certify that: (a) this Form 10-Q fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and (b) the information contained in this Form
10-Q fairly presents, in all material respects, the financial condition and
results of operations of the issuer.
McCLAIN INDUSTRIES, INC.
Date: August 13, 2002 By: /s/ Kenneth D. McClain
-------------------------------------------- -----------------------------------
Kenneth D. McClain, President
Date: August 13, 2002 By: /s/ Mark S. Mikelait
----------------------------------------------- --------------------------------------
Mark S. Mikelait, Treasurer
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