SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 2002 Commission File
No. 0-1709
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RVM INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 31-1515410
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
753 W. Waterloo Road, Akron, Ohio 44314-1519
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 753-4545
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed from last report)
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
--- ---
There were 1,937,505 shares outstanding of the Registrant's common stock as of
August 9, 2002.
RVM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited)
2002
----------------------------------------------
JUNE 30 MARCH 31
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 226,453 $ 173,392
Receivables:
Trade, net of allowance for doubtful accounts of $5,000 at
June 30 and March 31 1,035,238 1,040,941
Inventories 1,556,022 1,446,315
Refundable income taxes 1,001,000 1,001,000
Other current assets 21,824 24,691
Current assets of discontinued operation-Ravens 0 0
Current assets of discontinued operation-Albex 50,000 87,109
------------------ ------------------
Total current assets 3,890,537 3,773,448
Property, plant and equipment, net 574,086 537,154
Other assets 6,687 6,687
Deferred income taxes net of valuation allowance of $3,052,518
at June 30 and March 31, 2002 0 0
Non-current assets of discontinued operations-Ravens 1,823,128 1,846,239
Non-current assets of discontinued operation-Albex 2,940,000 2,870,000
------------------ ------------------
Total assets $ 9,234,438 $ 9,033,528
================== ==================
See accompanying notes to the consolidated financial statements (unaudited).
2
RVM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (unaudited), Continued
2002
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JUNE 30 MARCH 31
------------------ ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 1,601,356 $ 1,427,129
- related parties 40,000 0
Accrued expenses and liabilities 169,214 196,639
Deferred income taxes 0 0
Current portion of long-term debt 255,357 264,460
Debt in default 419,019 419,019
Current liabilities of discontinued operation-Ravens 2,080,272 2,125,205
Current liabilities of discontinued operation-Albex 3,274,197 3,261,345
------------------ ------------------
Total current liabilities 7,839,415 7,693,797
Long-term debt 3,717,362 3,502,505
Notes payable - related parties 527,800 527,800
Non-current liabilities of discontinued operations-Ravens 0 0
Non-current liabilities of discontinued operation-Albex 2,768,508 2,768,508
------------------ ------------------
Total liabilities 14,853,085 14,492,610
------------------ ------------------
Shareholders' equity:
Preferred stock, $0.01 par value; authorized shares, 300,000; none
outstanding - -
Common stock, $0.01 par value; authorized shares, 3,000,000; issued and
outstanding, 1,937,505 shares at June 30, 2001 and at March 31, 2001
19,376 19,376
Additional capital 5,311,336 5,311,336
Retained deficits (10,949,359) (10,789,794)
------------------ ------------------
Total shareholders' equity (5,618,647) (5,459,082)
------------------ ------------------
Total liabilities and shareholders' equity $ 9,234,438 $ 9,033,528
================== ==================
See accompanying notes to the consolidated financial statements (unaudited).
3
RVM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
THREE MONTHS ENDED
JUNE 30
--------------------------------------
2002 2001
----------------- ----------------
Net sales $ 1,998,024 $ 2,375,418
Cost of sales 1,905,931 2,233,714
----------------- ----------------
Gross profit 92,093 141,704
Selling, general and administrative expenses 150,068 144,049
----------------- ----------------
(Loss) income from operations (57,975) (2,345)
Other income (expense):
Other income 0 0
Interest expense (12,515) (9,782)
----------------- ----------------
(Loss) income before income taxes (70,490) (12,127)
Provision for income taxes 0 0
----------------- ----------------
(Loss) income from continuing operations (70,490) (12,127)
Discontinued operations:
(Loss) from discontinued operations of Ravens (179,125) (568,051)
(Loss) Income from discontinued of Albex, 90,050 (9,484,038)
----------------- ----------------
Net loss $(159,565) (10,064,216)
================= ================
Per share data:
Basic and diluted earnings (loss) per share:
Continuing operations $ (0.03) $ (0.00)
Discontinued operations (0.05) (5.19)
----------------- ----------------
$ (0.08) $ (5.19)
================= ================
See accompanying notes to the consolidated financial statements (unaudited).
4
RVM INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
THREE MONTHS ENDED JUNE 30
----------------------------------------
2002 2001
-------------------- -----------------
Cash flows from operating activities of continuing operations:
Net (loss) income from continuing operations.............................. $ (70,490) $ (12,109)
Adjustments to reconcile net (loss) income to net cash provided by
operating activities of continuing operations:
Depreciation and amortization........................................... 31,319 42,204
Loss on Sale of Fixed Assets............................................ 0
Increase (decrease) in allowance for doubtful accounts (21,000)
Increase (decrease) in cash from changes in:
Receivables ........................................................... 8,108 (66,386)
Inventories............................................................. (110,860) (68,527)
Other assets............................................................ 2,867 (22,470)
Accounts payable........................................................ 174,553 500,501
Accrued expenses and other current liabilities.......................... 24,117 (15,197)
-------------------- -----------------
Net cash provided by operating activities of continuing operations...... 59,614 337,016
-------------------- -----------------
Cash flows from investing activities of continuing operations:
Capital expenditures...................................................... (68,249) (8,597)
Proceeds from sale of fixed assets...................................... 0 0
Proceeds from sale of Ravens............................................ 0 0
Proceeds from Sale of Albex fixed assets................................ 0 0
-------------------- -----------------
Net cash used by investing activities of continuing operations.......... (68,249) (8,597)
-------------------- -----------------
Cash flows from financing activities of continuing operations:
Payments on long-term debt................................................ (1,605) (421,432)
Proceeds on long-term debt................................................ 0 0
Payments on notes payable - bank, net..................................... (17,641) (1,581,036)
Payments and proceeds notes payable to related parties.................... 40,000 18,056
Contributed capital majority stockholder.................................. 0 0
-------------------- -----------------
Net cash used by financing activities of continuing operations.......... 20,754 (1,984,412)
-------------------- -----------------
Cash flows provided (used) in continuing operations.......................... 12,119 (1,655,993)
Cash flows provided (used) by discontinued operations........................ 40,942 1,833,834
Net (decrease) increase in cash and cash equivalents......................... 53,061 177,841
Cash and cash equivalents at beginning of period.............................. 173,392 1,108,115
-------------------- -----------------
Cash and cash equivalents at end of period.................................... $226,453 $1,285,956
==================== =================
See accompanying notes to the consolidated financial statements (unaudited).
5
RVM INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The information in this report reflects all adjustments, which are, in
the opinion of management, necessary for a fair statement of the
results for the interim periods presented for RVM Industries, Inc.
("the Company"). All adjustments other than those described in this
report are, in the opinion of management, of a normal and recurring
nature. These consolidated financial statements include the accounts of
RVM's wholly owned subsidiaries: Ravens, Inc. ("Ravens") now know as
Waterloo Holding Company, Albex Aluminum, Inc. ("Albex") and Signs and
Blanks, Inc ("SABI"). All significant intercompany accounts and
transactions have been eliminated.
2. GOING CONCERN OF THE COMPANY
The accompanying unaudited consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. As of March 31, 2002 the Company was in violation of certain
of its covenants related to its FirstMerit Bank, N.A. ("FirstMerit")
debt in the total amount of $3,540,977. The company restructured the
debt with FirstMerit on April 5, 2002 and Mr. Jacob Pollock guaranteed
$3,200,000 of the debt. The Company is in default as of March 31, and
June 30, 2002 on payment of interest and principle of debentures in the
amount of $419,018. The Company's liabilities exceed its assets and it
no longer conducts its Albex and Ravens operations. There is
substantial doubt as to the Company's ability to continue as a going
concern for a reasonable period of time.
3. DISCONTINUED OPERATIONS
In August 2001, the Company's Board of Directors approved a plan to
shutdown Albex. Accordingly, the results of operations for Albex have
been presented as a discontinued operation in the accompanying
unaudited consolidated financial statements for all periods presented.
The estimated loss on disposal of the discontinued operations of Albex
has been determined based on management's estimated loss related to the
write-down of impaired property, plant, and equipment and estimated
losses from operations during the phase-out period. For the three month
period ended June 31, 2001, the loss amounted to $9,484,038.
On December 19, 2001, the Company sold the Albex extrusion building,
machinery and equipment to an unrelated third party. The cash received
from that sale was used to pay down secured debt. The company signed a
letter of intent in November 2001 to sell the cast house land, building
and equipment. The sale was completed in August 2002 and the cash from
the sale will be used to pay down the debt to FirstMerit and continuing
operating expenses related to the sale of Albex.
6
3. DISCONTINUED OPERATIONS (CONTINUED)
The loss from operations for Albex for each period is presented below:
Three Months Ended
June 30
2002 2001
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Net sales $ 60,000 $ 4,615,680
Operating loss (57,235) 1,138,038
Income tax benefit 147,285
--------------- ---------------
Loss from operations (90,050) 1,138,038
Estimated (gain) loss on disposal
0 8,346,000
--------------- ---------------
Net loss (gain) $ (90,050) $ 9,484,038
=============== ===============
On November 14, 2001, the Company sold the operating assets and
liabilities of Ravens. Accordingly, the results of operations for
Ravens have been presented as a discontinued operation in the
accompanying unaudited consolidated financial statements for all
periods presented. The estimated loss of disposal of the discontinued
operations of Ravens was not determined during the three-month period
ended June 30, 2002. The statements presented for Ravens do not include
any of management's estimated loss on the sale of Ravens' operations,
severance costs, and other costs incurred to sell the operations of
Ravens. For the three months ended June 30, 2002, the operating loss
was $568,051. Subsequently for the full year ended March 21, 2002, the
Company's loss on the discontinued operations of Ravens was $5,314,529,
of which the operating loss to November 14, 2001 was $2,726,314.
The loss from operations for Ravens' for each period are presented
below:
Three Months Ended
June 30
2002 2001
-------------- -------------
Net sales $ 0 $6,412,827
Operating loss (income) 179,125 568,051
Income tax (expense) --
------------- ------------
Loss (income) from operations
179,125 568,051
Estimated loss on disposal 0 0-
------------- ------------
Net loss (income) $ 179,125 $ 568,051
============== =============
The current and non-current assets and liabilities of Ravens and Albex
have been classified appropriately on the unaudited consolidated
balance sheet at June 30, 2002 and March 31, 2002 based on the timing
and the amount of anticipated net proceeds related to the sale of the
assets of Albex.
7
4. FINANCIAL OBLIGATIONS
On April 5, 2002, FirstMerit amended the Company's revolving note
agreement. The amended agreement extends the maturity of the revolving
note from March 31, 2002 to March 31, 2003, reduces the interest rate
from FirstMerit's prime rate plus .75% to FirstMerit's prime rate plus
.50%, and amends the maximum outstanding balance of the revolving loan
to $350,000. The Company owed $191,616 and $209,258 under this
agreement at June 30, 2002 and March 31, 2002 respectively.
The Company paid off all other loans to FirstMerit and entered into a
new agreement on April 5, 2002 that replaced those loans with a single
loan of $3,540,977. Interest on the loan was fixed at 6.0%. Interest
only payments are due until October 2002 and monthly interest and
principle payments made on a twenty year amortization schedule
thereafter. The note matures with all remaining principal due on March
31, 2007.
The Company entered into a short-term draw down note with FirstMerit
for $450,000, interest fixed at 7.0%. All interest and principal is due
on September 30, 2002. The Company owed $225,000 and $0 at June 30,
2002 and March 31, 2002 respectively.
Mr. Jacob Pollock provided a $3,200,000 personal guarantee on the above
loans to FirstMerit.
5. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are based on net income (loss) divided
by the weighted average number of common shares outstanding. The
weighted average number of common shares outstanding was 1,937,505 in
2002 and 2001. Diluted earnings per share reflect the potential
dilution that could occur if all options or contracts to issue common
stock were issued or converted. Basic earnings per share for the
Company are the same as diluted earnings per share.
6. INVENTORIES
Inventories consist of the following:
June 30, 2002 March 31, 2002
---------------- -----------------
Raw materials $ 854,100 $ 842,474
Work in process 0 0
Finished goods 701,922 603,841
---------------- -----------------
$1,556,022 $1,446,315
================ =================
8
7. ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS 141 requires that the purchase method be used for all
business combinations initiated after June 30, 2001. SFAS 142 requires
that goodwill no longer be amortized to earnings, but instead be
reviewed for impairment. The amortization of goodwill ceases upon
adoption of SFAS 142, which for the Company will be April 1, 2002. The
Company does not anticipate that the adoption of the new statement will
have a significant effect on earnings or the financial position of the
Company.
In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 is
effective for fiscal year beginning after December 15, 2001 or fiscal
year beginning April 1, 2002 for the Company. SFAS 144 addresses
financial accounting and reporting for the impairment of long-lived
assets and for long-lived assets to be disposed of. The Company does
not anticipate that the adoption of the new statement will have a
significant effect on earnings or the financial position of the
Company.
On April 1, 2001, the Company adopted Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended (SFAS 133).
SFAS 133 requires the Company to recognize all derivative financial
instruments on the balance sheet at fair value. The Company does not
utilize derivative financial instruments; therefore, there was no
impact upon adoption.
8. CONTINGENT LIABILITIES
The Company, Ravens, Waterloo Holding and Mr. Jacob Pollock have been
named in a fraudulent suppression complaint made by Fontaine Trailer
Company Inc. The complaint involves warranty issues and the amount of
warranty reserve transferred to Fontaine as part of the purchase price
of Ravens. The Company believes that the reserve was adequate to fund
all warranty claims in the future for units sold by Ravens prior to the
sale of the company.
The Company and Albex are defendants in a wrongful death and employer
intentional tort claim. In cases like this where there are many
underlying facts that are disputed, it is difficult to predict a
favorable or unfavorable outcome. If the plaintiff prevails against the
Company, liability is significant, as the jury will have broad
discretion to fix the amount of damages it awards for both compensatory
and punitive damages. The Company believes in the strength of its
defenses and intends to assert them if a trial is necessary. The
Company also believes any settlement is within the limits of its
insurance policies.
Albex has been named in a number of unsecured creditors claims for
amounts due. The sale of all of the assets of Albex will be used to pay
down the debt to the secured creditors. The Company notified all of
Albex's unsecured creditors that payment was not probable.
Albex has been named in a foreclosure proceeding relating to the
mortgage on the land and buildings. Albex will surrender the land and
buildings to the mortgage holder when the proceeding is completed. The
mortgage holder is a company controlled by Mr. Jacob Pollock. The
mortgage on the land and building is $3,486,564 and the appraisal for
the land and buildings as of May 3, 2001 was $1,820,000.
9
RVM INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DECEMBER 31, 2001
MATERIAL CHANGES IN FINANCIAL CONDITION
The Company had cash and cash equivalents of $226,453 and $173,392 at June 30,
2002 and March 31, 2002, respectively. The Company could have borrowed
approximately $158,384 more on a line of credit with FirstMerit Bank on June 30,
2002. The Company has borrowed $225,000 on a $450,000 drawn note with
FirstMerit. The Company owes FirstMerit at June 30, 2002 $3,540,977 on a five
year note that is secured by all of the Company's inventory, receivables and
fixed assets. See footnote 4 to the Consolidated Financial Statements for
discussion on the financial obligations of the Company.
The proceeds from the sale of the remaining assets of assets of Albex and Ravens
will be used to fund operating expenses to close down those businesses and to
reduce substantially the secured debt.
A Company controlled by Mr. Jacob Pollock intends to purchase all of the
outstanding stock of the Company. The Company will notify all outstanding
shareholders and members of his family regarding the details of this transaction
in its Information Statement for the 2002 Annual meeting of the stockholders.
The financial statements in this document have been prepared on a going concern
basis, which contemplates the realization of assets and liabilities in the
normal course of business. The financial statements do not include any
adjustments relating to the recoverability and classification of assets carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
Account Receivables (SABI only) of $1,035,238 reflect a decrease from year-end
of $5,703 resulting from lower sales.
Inventories (SABI only) of $ 1,556,022 increased from year-end by $109,707.
Inventories have increased due to the combination of mix of sales and
availability of lower cost material.
Capital expenditures at SABI were $68,249 for equipment that improved the
operations and increased capacity for items not previously sold by SABI.
Accounts Payable (SABI only) of $1,601,356 increased $174,227 and reflected
mainly the increase in inventory for the same period. Mr. Jacob Pollock advanced
the Company $40,000 to purchase the capital equipment at SABI. The terms are
equal four-month payments with no interest.
The Company believes that if SABI were sold along with the completion of the
sale of the remaining assets of Albex the amount received would be required to
pay down the debt owed to FirstMerit that is due March 31, 2003 and 2007. The
only alternative is to arrange new financing. The Company believes that the
potential sale of the SABI assets and liabilities and the sale of the Albex
assets will generate enough cash to pay down most of the senior secured debt.
However, certain unsecured vendors (mainly at Albex) will not be paid. As the
Company winds down operations, its shares will have little or no value to the
stockholders and it is unlikely that the Company will pay the debt to related
parties.
10
Three Months Ended June 30, 2002 Compared to the
Three Months Ended June 30, 2001
--------------------------------
Consolidated net sales, (SABI only), were $1,998,024 or 15.9% lower than last
year. The general slowdown of the economy caused the lower sales as government
agencies are cutting back purchases. Gross Profit as a percent of net sales
decreased to 4.6% from 5.6%, due mainly to mix of product and lower selling
prices. Selling and General Administrative costs increased 4% to $150,068. The
Company 's loss from continuing operations was $(70,490) compared to a loss of
$(12,127) in the comparable period last year.
Ravens incurred an additional $179,125 of operating loss for the quarter due
mainly to the continuing cost associated with the close down of the Company and
the litigation resulting from the sale of the company.
The Albex income of $90,050 results mainly to a one-time income tax refund for
the prior year.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-Q are made pursuant to the safe
harbor provisions of Rule 175 promulgated under the Securities Act of 1933. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Potential risks and
uncertainties include, but are not limited to: general business and economic
conditions; the financial strength of the industries which the Company serves;
the competitive pricing environment within the markets which the Company serves;
labor disruptions; interruptions in the supply of raw materials and services; a
significant increase in the price of aluminum; continued availability of credit
from lenders and vendors; government regulations; and obsolescence of the
Company's products and manufacturing technologies.
11
PART II. OTHER INFORMATION
Item 1. Legal Disclosures
Item 5. Other Information
The Company's outside independent accountants did not review the
included unaudited financial statements as required by Reg. S-X Rule
10-01(d).
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Item
----------- ----
99 Statement regarding the certifications
required pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
A Form 8-K was filed on July 15, 2002 naming SS&G Financial
Services, Inc. as the Company's auditor.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RVM INDUSTRIES, INC.
Registrant)
By: /s/ Jacob Pollock
----------------------------------
Jacob Pollock, Director, Chief Executive Officer
(Principal Financial Officer
And Principal Accounting Officer)
Date: August 13, 2002
12