UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File
March 31, 2002 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
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates as of
January 2, 2003, based on a bid price of $0.05 was approximately $8,558. The
Registrant has no non-voting common equity.
There were 1,937,505 shares outstanding of the Registrant's common stock as of
January 2, 2003.
Documents Incorporated by Reference
-----------------------------------
None
1
RVM INDUSTRIES, INC.
Index to Annual Report on Form 10-K
for the Fiscal Year Ended March 31, 2002
PART I PAGES
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Item 1 Business 3-9
Item 2 Properties 9-10
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote of Security Holders 10
PART II
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Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters 11
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-17
Item 7a Quantitative and Qualitative Disclosures about Market Risk 17
Item 8 Financial Statements and Supplementary Data 17-44
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 45
PART III
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Item 10 Directors and Executive Officers of the Registrant 45-46
Item 11 Executive Compensation 47-49
Item 12 Security Ownership of Certain Beneficial Owners
and Management 50
Item 13 Certain Relationships and Related Transactions 51
Item 14 Controls and Procedures 51
PART IV
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Item 15 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 52-55
2
PART I
ITEM 1. BUSINESS
COMPANIES
RVM Industries, Inc. (RVM) is a publicly held holding company. Ravens, Inc.
(Ravens), Albex Aluminum, Inc. (Albex), and Signs and Blanks, Inc. (SABI) are
wholly owned subsidiaries of RVM. On November 14, 2001, Ravens sold certain
operating assets and liabilities to Fontaine Trailer Company, Inc. Ravens
subsequently changed its name to Waterloo Holding Company. The "Company" refers
to RVM, Ravens (Waterloo Holding Company), Albex and SABI, collectively.
FISCAL YEAR
RVM's fiscal year ends on March 31. References to 2002, 2001, etc. are for the
fiscal years ended March 31, 2002, 2001, etc., respectively.
GENERAL DEVELOPMENT OF THE BUSINESS
Ravens Metal Products, Inc. was incorporated in the State of West Virginia on
April 9, 1956 and reincorporated in the State of Delaware on September 3, 1986.
Jacob Pollock (Pollock) acquired majority control on May 3, 1991.
On March 31, 1997, Ravens Metal Products, Inc. changed its name to Ravens, Inc.
and effected reorganization with RVM pursuant to Section 251(g) of the Delaware
General Corporation Law. Each holder of the common stock of Ravens became the
holder of an equal number of shares of RVM, a newly created holding company. The
holders of RVM common stock have substantially the same rights that they had as
holders of the common stock of Ravens. RVM filed Form 8-B on March 31, 1997 to
register the common stock shares of RVM with the Securities and Exchange
Commission.
On March 31, 1997, RVM purchased all of the common stock of Albex and SABI,
which were corporations wholly owned by Pollock, the majority shareholder of
RVM. Since this was a business combination of entities under common control, the
financial statements of prior years were restated to reflect the combination on
an "as if pooling of interests" basis.
Albex was incorporated in the State of Ohio on February 25, 1991, as Wirt Metal
Products, Inc., relocated its operations from Elizabeth, West Virginia to
Canton, Ohio in 1996, and changed its name in 1997 to better reflect its
business of manufacturing aluminum billets and extrusions. Albex purchased the
real estate and an extrusion press in Elizabeth from Ravens prior to Pollock
purchasing a majority interest in Ravens.
SABI was founded by Pollock and incorporated in the State of Ohio on July 10,
1989.
On April 8, 1999, RVM purchased the assets and inventory of a steel trailer
manufacturing plant in Knox, Indiana, for approximately $1.2 million. The plant
produces a new steel trailer product line that enhances the current product line
and is sold through the Ravens distribution network.
3
In August 2001, the Company's Board of Directors approved a plan to shut down
Albex. Albex suspended cast house production in November 2000 due to slow demand
for aluminum billet. By September 2002 all extrusion manufacturing was
suspended. Low demand for the product was the major cause of the shutdown. In
December 2001, the Company sold Albex extrusion machinery and equipment to a
non-related third party. Accordingly, Albex's historical operations have been
reported as discontinued operations.
On November 14, 2001, the Company sold the operating assets and liabilities of
Ravens to Fontaine Trailer Company, Inc. Ravens changed its name to Waterloo
Holding Company and controls the assets and liabilities not sold to Fontaine
Trailer Company, Inc.
In January 2002, the Company entered into an agreement with a non-related third
party to sell Albex cast house land, building, machinery and equipment. The sale
was completed in July, 2002.
Subsequent to the shutdown of Albex and the sale of Raven's operating assets and
liabilities, RVM's operations consist solely of SABI.
MARKETS
RAVENS
Prior to the sale the principal business of Ravens is the design and manufacture
of truck trailers, consisting of platform (flatbed) trailers, drop deck
trailers, dump trailers, and dump truck bodies. Since the late 1950s, Ravens
designed and manufactured durable, lightweight aluminum trailers and bodies,
which provide the advantage of lower operating costs plus higher legal payload
capacity. Ravens' products are primarily made with aluminum bodies and aluminum
chassis. With the addition of the Knox facility, Ravens produces a dump trailer
made of steel. The steel dump trailer serves the demolition market, which
requires a more durable body. Ravens' truck trailers are basically standardized
products with a number of optional features available; however, certain
variations are often made to satisfy customers' requirements. Ravens also
manufactures truck and trailer accessories, including toolboxes, side kits and
boxes, bulkheads and other optional equipment. Ravens sells a wide variety of
after-market parts for trucks and trailers, including parts for its own
trailers.
The markets for Ravens' truck trailer and body product lines are virtually all
within the highway transportation industry in the U.S. with a small amount of
sales in Canada. These markets include both for-hire carriers (commercial
trucking companies and owner operators) and private carriers (manufacturers and
producers delivering their own products or commodities). Dump trailer and body
applications include construction and road building materials, agricultural and
mining products, industrial and municipal waste, and a wide range of other bulk
commodities. Platform trailers are utilized in a variety of applications,
including steel and other metals, lumber, building materials, machinery,
appliances, and industrial equipment. The overall business of Ravens is not
generally seasonal.
A down turn in the U.S. trailer industry started approximately in the second
calendar quarter of 2000 and the industry has yet to see a recovery. For the
calendar year 2000 the Bureau of the Census reported overall manufacturers
shipments of units were 240,256, down 20.1% from the previous year, with the
fourth quarter shipments down 31.4% from the previous fourth quarter. The
Industry continued to be depressed in calendar year 2001. Ravens sales through
November 14, 2001 decreased 49.5% from the same period last year. Over all
industry information is not available for calendar year 2001.
4
Trailer sales have been affected by fuel prices, interest rates, bankruptcies
that have made available newer used equipment in the market place, tightened
credit policies of financing sources for customers and the overall general
slowing of the economy.
ALBEX
Albex operated three extrusion presses (1,400 ton, 2,200 ton, and 3,000 ton) for
standard and custom soft alloy aluminum extruded shapes. Several of aluminum's
physical properties such as tensile strength, corrosion resistance, thermal
conductivity, lighter weight than steel, and scrap value for recycling are
attractive to a wide range of markets. Albex sold to manufacturers, fabricators
and distributors in the transportation, building and construction, consumer
durables, and other aluminum extrusion markets. Most sales are to customers in
the midwestern portion of the U.S. Albex's business is not generally seasonal.
Albex extrusion business continued to decrease in 2002. Albex shipped 5.8
million pounds of extrusions in the first five months of 2002, a decrease of 40%
over the same five months of 2001. The transportation industry continued to be
in a severe recession in addition to the overall recession in the manufacturing
segment. In 2001, Albex shipped approximately 18.5 million pounds of aluminum
extrusions on a market that exceeded 3.5 billion pounds. Albex shipments in 2001
were down 32.9% from 2000 due to a general decline in the business activity in
manufacturing and most specifically the transportation segments.
Applications in the transportation market included truck trailers and bodies,
utility trailers, recreational vehicles, and railcars. Approximately 7%, 18%,
and 21%, of Albex's net sales in 2002, 2001, and 2000, respectively, were to
Ravens. These sales and intercompany inventory profits have been eliminated from
the consolidated financial statements.
Primary uses in the building and construction markets were structural beams and
components for buildings, road sign supports, and components for highway and
bridge construction. Examples of consumer durables are components for boats,
sports and exercise equipment, greenhouses, and durable medical equipment. Albex
produces a wide variety of standard shapes such as angles, bars, channels,
pipes, and beams that are purchased by distributors for resale to end users.
Albex constructed an aluminum billet casting facility in 1997 in order to
recycle aluminum scrap generated internally and purchased from suppliers into
aluminum billet to be used for producing extrusions and to sell to customers.
The aluminum billet market suffered a dramatic drop in demand. Coupled with
significant drop in Ravens orders, Albex suspended production at the cast house
in November 2000. Billet supplies are readily available at competitive prices
from other producers.
SABI
SABI is a fully automated manufacturer of aluminum sign blanks and traffic,
warning, and street signs. SABI distributes its manufactured products and
purchased sign posts to a market approximating $350 million per year.
Approximately two-thirds of SABI's sales are to fabricator/dealers who purchase
aluminum blanks, cover them with reflective sheeting that is often silk
screened, and then sell the finished signs to governmental agencies.
Approximately one-third of SABI's sales are directly to governmental agencies in
the form of blanks or signs silk-screened by SABI's print shop. Most sales are
to customers east of the Mississippi River. SABI's business is not generally
seasonal.
5
BACKLOG
The order backlogs for the sign industries are not relevant due to the nature of
the industries and customers. These backlogs tend to be low and of short
duration.
DISTRIBUTION AND SERVICE
RAVENS
Ravens sold and serviced truck trailers nationally through 71 trailer
dealerships located in 32 states and 4 dealerships located in Canada. Ravens
owns trailer and parts sales branch located in Dover, Ohio. In addition, Ravens
has regional sales managers who support the dealerships and solicit direct sales
from fleet customers.
Service and maintenance on Ravens' products were performed by its Dover, Ohio
service branch. The Company approved garages, repair shops, and customers are
also authorized to service its products.
Ravens assisted in financing its trailer sales to customers by guaranteeing the
time payment notes of customers with acceptable credit standing to a finance
company. See Note 9 to the consolidated financial statements as to contingent
liabilities with respect to these notes.
Ravens accepted used trailers as trade-ins on sales of new trailers and
purchased used trailers for resale. Ravens generally reconditioned these used
trailers when necessary and held them for resale. Ravens did not generally lease
trailers.
ALBEX
Albex utilized its own sales force and manufacturer representatives to solicit
orders from distributors and other customers. Albex also toll processes metal
owned by customers into billets and extrusions.
SABI
SABI solicits sales mainly through telephone contacts with customers and through
independent sales representatives.
RAW MATERIALS
Aluminum in the form of coil, sheet, plate, primary ingot, billet and scrap is
the principal raw material used by the Company. The Company also purchased
components such as reflective sheeting, tires, wheels, axles and other hardware
items. The Company is not dependent upon any single supplier for aluminum or
other raw materials and components; however, a significant increase in the price
or an interruption in the supply of aluminum could adversely affect the Company.
6
COMPETITION
RAVENS
Ravens competed nationally in the platform trailer and dump trailer categories
of the diverse and highly competitive truck trailer industry. There were
approximately 90 companies who manufacture aluminum, composite (aluminum and
steel), and steel platform and/or dump trailers. A majority of these companies
compete within local or regional areas.
Ravens developed product design, manufacturing, and marketing expertise for
aluminum platform and dump trailers. Aluminum trailers, compared to composite
and steel trailers, are lighter, enabling a larger payload to be hauled, last
longer, require less maintenance, and have higher resale and scrap values. These
factors are distinct advantages of aluminum trailers, but the higher cost of
aluminum compared to steel requires a larger investment by the customer.
Ravens was recognized as a leading manufacturer of aluminum platform trailers.
Ravens believes that there are no more than 10 manufacturers of aluminum
platform trailers, of which four account for approximately 90-95% of the units
produced. Ravens believes, based upon 2000 estimates of units registered, that
Ravens' market share was approximately 25% and that East Manufacturing
Corporation, Benson Truck Bodies, Inc., and Reitnouer, Inc. had market shares of
approximately 21%, 17%, and 32%, respectively. Ravens strives to compete based
upon product performance, but economic conditions and competition with aluminum,
composite, and steel manufacturers have caused the importance of price to
increase. Market information for 2001 was not available.
Ravens commenced production of platform trailers in its Kent, Ohio facility in
June 1995 and in October 1996 introduced the FleetHawk, a platform trailer
designed to compete more effectively against composite trailers sold to the more
cost conscious fleet customer. The FleetHawk is heavier but less expensive than
the Ravens Eclipse II Classic. Ravens believes that the higher initial cost of
the FleetHawk can be more than recovered through lighter weight and lower
operating costs than the composite trailer offered by competitors. Ravens also
introduced an aluminum flatbed truck body with the same features as the Eclipse
II Classic flatbed (platform) trailer. Ravens introduced a drop deck platform
trailer in March 1998.
In April 1999, Ravens purchased the assets of Galbreath's steel dump line of
trailers at Knox, Indiana. This acquisition complements Ravens' aluminum line of
trailers and allows the Company to compete in demolition, scrap, boulder dump
and other heavy-duty operations that require steel trailers. Ravens uses a
stronger heat-treated steel such as AR-400 to produce a longer lasting steel
trailer and employs a 2000 ton brake press in the manufacture of steel trailers.
Ravens is able to form the required steel materials in single section, which
gives it an advantage over a competitor that must weld multiple sections to form
the steel dump trailer body.
On November 14, 2001, the Company sold the operating assets and liabilities of
Ravens to Fontaine Trailer Company, Inc.
7
ALBEX
The aluminum extrusion industry is highly competitive. Although there are more
than 100 companies in North America that participate, the industry has begun to
consolidate as large aluminum companies have acquired major extrusion
manufacturers. Prior to closing, Albex's principal competitors included Alcoa,
Kaiser, Indalex, Norsk and Hydro Wells Aluminum. Success in the industry turns
on a company's ability to keep the presses at a high level of utilization while
supplying a quality product on time and at a fair price. Albex had positioned
itself well in the industry with the three extrusion presses; however, due to
slow demand for aluminum billet and strong competition, manufacturing was
suspended during the second quarter of fiscal 2002.
SABI
SABI believes that it is one of the four largest companies whom together account
for approximately 25% of the sign market and that its market share approximates
5-6%. The other three companies are Hall Signs, Inc., Newman Traffic Signs, Inc.
(Newman), and Vulcan, Inc. Newman competes against SABI in all geographic
markets, whereas the others are strong in particular geographic areas. A large
number of other manufacturers, fabricator/dealers, and governmental sign shops
account for the other 75% of the sign market.
PATENTS AND TRADEMARKS
Ravens is a registered trademark for its swirl design finish on its manufactured
products. Ravens believe that the swirl finish is a cosmetic feature, which
favorably distinguishes its trailers and bodies from competitors' products.
Ravens sold the trademark to Fontaine Trailer Company, Inc. on November 14,
2001.
EMPLOYEES
The Company employed approximately 40 people at March 31, 2002 compared to
approximately 296 administrative, sales, engineering, production, and repair and
service personnel at March 31, 2001. SABI's hourly production employees are
represented under an agreement expiring on December 31, 2003 with The Glass,
Molders, Pottery, Plastics & Allied Workers International Union, AFL-CIO. Hourly
personnel at Ravens became employees of Fontaine or were terminated and hourly
personnel at Albex were terminated in connection with the shut down.
REGULATION
The U.S. Government and State Governments regulate truck trailer length, height,
width, maximum capacity and other specifications. The U.S. Government also
regulates certain safety features incorporated in the design of truck trailers.
8
ENVIRONMENTAL MATTERS
The Company's facilities are subject to the environmental laws and regulations
of the jurisdictions in which they are located. RVM believes that the
environmental standards maintained at such locations meet applicable regulatory
requirements. The Company's operations, like those of other competitors in basic
industries, have in recent years become subject to increasingly stringent
legislation and regulations with regard to protection of human health and the
environment. More rigorous policies and requirements may be imposed in the
future. Although RVM is not aware of any specific measures or expenditures that
will be required, compliance with such laws, regulations or policies may require
expenditures in the future.
ITEM 2. PROPERTIES
RVM leases approximately 11,000 square feet of office space for its corporate
office in Akron, Ohio, from a company controlled by Jacob Pollock.
Albex owns a 47-acre site in Canton, Ohio. The extrusion operation and
administrative offices were located in a 250,000 square foot building
constructed primarily of brick. A 36,000 square foot prefabricated steel
building houses the billet casting operation.
The Company sold or transferred the leases for the following properties to
Fontaine Trailer Company, Inc. on November 14, 2001.
1. The Ravens manufacturing facility is on an 8-acre site in
Jacksonville, North Carolina. This facility is comprised of a
prestressed concrete building that contains approximately 43,200
square feet of fabrication area and a concrete block building
with approximately 3,000 square feet of space for washing and
painting trailers.
2. The Ravens manufacturing facility is on a 22-acre site in Kent,
Ohio. The building consists of approximately 95,000 square feet
primarily of steel construction. Ravens completed construction of
a 62,000 square foot steel building at its Kent property on April
30, 1999. The building houses aluminum cut-to-length equipment
and provides space for manufacturing new products.
3. Steel dump production at a 6-acre site with two buildings leased
by Ravens in Knox, Indiana. The main building is approximately
55,000 square feet; a brake press building of 4,900 square feet
was completed in November 1999.
4. The branch in Dover, Ohio is housed in three buildings of cement
block construction with approximately 25,000 square feet of floor
area on 3.5 acres of land. This property is utilized for trailer
sales, service, and repairs. The building contains offices,
storage space, and shop space. Yard area is utilized for storage
of new and used trailers and trailers in process of repair and
maintenance. Ravens owned the land and buildings.
5. Land and buildings situated on approximately 9.2 acres adjacent
to the branch facility in Dover, Ohio. From 1995 to 1997, Ravens
utilized the buildings, constructed primarily of concrete block
and totaling approximately 36,000 square feet, for manufacturing
of utility, snowmobile, and personal watercraft trailers. Ravens
relocated the wholesale parts business from Parkersburg, West
Virginia in July 1998 to this property.
9
The Albex extrusion building and land were leased to a non-related third party
that had purchased the extrusion machinery and equipment. The lease term is for
ninety-nine years with a one-year notification required to terminate.
SABI operates in a leased 64,000 square foot predominantly steel and concrete
block building in Akron, Ohio. RVM believes that SABI has sufficient production
capacity to meet current and projected demand for its products. SABI leases the
facility from a company that Richard Pollock is a shareholder.
Certain owned property of the Company was subject to mortgages and is collateral
for lines of credit and a letter of credit. See Notes 7 and 8 to the
consolidated financial statements.
ITEM 3. LEGAL PROCEEDINGS
The Company, Waterloo Holding (formerly Ravens) and Mr. Jerry 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 Trailer Company, Inc. 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 in August 2001 were named 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
defense and intends to assert them if a trial is necessary. The Company also
believes any settlement is within the limits of its insurance policies.
The Company, Albex and an unrelated party were defendants in a wrongful death
and employer intentional tort claim. In July 2001, the plaintiff, the Company,
and the Company's insurance carriers settled this claim within the limits of the
Company's insurance policies and therefore there was not any impact on the
Company's financial position and results of operations and cash flows.
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 had 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. Jerry Pollock. The mortgage on the land and building is
$2,400,000 and the appraisal for the land and buildings as of May 3, 2001 was
$1,820,000.
The Company is involved in various claims and litigation arising in the ordinary
course of business. Management believes that the outcome of such claims will not
have a material adverse effect on the Company's financial position and results
of operations and cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the quarter
ended March 31, 2002.
10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
RVM's common stock (trading symbol "RVMI") is traded over-the-counter and quoted
on the OTC Bulletin Board and on "pink sheets" which are published periodically.
The high and low trade prices and shares traded of RVM's common stock as
reported by the OTC Bulletin Board for each quarterly period during the last two
fiscal years were as follows:
SHARES
HIGH LOW TRADED
----------------- ---------------- -----------------
2002
First quarter $4.50 $1.01 900
Second quarter 1.01 1.01 100
Third quarter 1.01 1.01 200
Fourth quarter 1.01 0.04 16,500
2001
First quarter $4.75 $4.00 7,900
Second quarter 4.75 4.00 11,800
Third quarter 4.25 4.13 3,700
Fourth quarter 4.25 4.00 2,500
The trade prices do not include retail mark-ups, markdowns or commissions.
RVM has not paid dividends in the last two years and is restricted from paying
dividends by its loan agreements. Payment of dividends is within the discretion
of RVM's Board of Directors and will depend on, among other factors, earnings,
capital requirements and the operating and financial condition of the Company.
RVM does not presently intend to pay dividends in the foreseeable future.
There were approximately 3,700 holders of record of the Registrant's common
stock as of October 1, 2002. See Item 12.
11
ITEM 6. SELECTED FINANCIAL DATA FOR THE YEARS ENDED MARCH 31
This information should be read in conjunction with the consolidated financial
statements and the related notes in Item 8 and Management's Discussion and
Analysis of Financial Condition and Results of Operations in Item 7.
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Net sales $ 8,080,448 $ 9,457,015 $ 9,991,880 $ 11,153,221 $ 11,302,623
(Loss) from continuing operations (349,613) (646,070) (462,603) (273,106) (122,667)
(Loss) income from operations of
discontinued operations (5,149,744) (4,407,874) (242,914) 2,838,683 3,641,342
(Loss) from sale of discontinued
operations (5,826,201) (194,933) (114,763) 0 0
Cumulative effect of accounting change 0 0 0 0 (211,651)
Net (loss) income (10,235,605) (4,244,526) (535,451) 1,533,341 1,821,944
Earnings (loss) per share:
Continuing operations $ (0.18) $ (0.35) $ (0.27) $ (0.23) $ (0.17)
Discontinued operations (5.10) (1.84) (0.01) 1.02 1.11
------------ ------------ ------------ ------------ ------------
$ (5.28) $ (2.19) $ (0.28) $ 0.79 $ 0.94
Basic and diluted earnings per share
Income before cumulative effect of
accounting change $ (5.28) $ (2.19) $ (0.28) $ 0.79 $ 1.05
Cumulative effect of accounting change 0.00 0.00 0.00 0.00 (0.11)
------------ ------------ ------------ ------------ ------------
Net (loss) income $ (5.28) $ (2.19) $ (0.28) $ 0.79 $ 0.94
============ ============ ============ ============ ============
Average number of shares used in
computation of per share amounts 1,937,505 1,937,505 1,937,498 1,936,756 1,935,776
Cash dividends declared per common share
$ 0 $ 0 $ 0 $ 0 $ 0
Total assets 8,852,863 43,702,603 53,731,708 48,999,890 48,348,030
Total long-term obligations 2,410,143 3,873,907 30,760,387 27,866,431 26,995,189
Working (deficit) capital (2,550,318) (15,045,502) 15,412,492 10,655,095 10,591,297
Shareholders' (deficit) equity (2,881,604) 4,644,533 8,889,059 9,422,510 7,888,169
(1) Includes loss of $2,573,016 for impairment of long-lived assets.
(2) Net loss for Albex and SABI for the quarter ended March 31, 1997 recorded
as accounting change as Albex and SABI changed their fiscal year ends from
December 31 to March 31.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company entered into 2002 with the expectation that the economy would turn
around. The recession that was being experienced by the trucking and extrusion
businesses had started in calendar April 2000, well ahead of the general
economy. The Company had been in default on its loans since September 2000. The
Company continued throughout 2001 to work with its lenders and suppliers to keep
the Ravens, Albex and SABI businesses continuing.
Liquidity became the Company's key issue. Both Ravens and Albex continued to
experience significant sales decreases due to the trucking and extrusion
industries further decline in sales. Both Ravens and Albex continued to cut
costs and reduce inventories as sales volume declined. The Company continued to
look for alternative financing, but the losses generated and the continuing
bleak forecasts for the trailer and extrusion industries prevented any interest
from lenders.
In August 2001 the Company's Board of Directors approved the plan to shutdown
Albex. Albex's current assets were liquidated and the cash was used to pay both
expenses and secured lenders. In December 2001 Albex's extrusion machinery and
equipment were sold to a non-related third party. The cash proceeds of
$4,250,000 were used to pay expenses and the secured lenders. The remaining
assets of Albex either will be sold and or are in a foreclosure proceeding. The
cash generated will be used to pay expenses and secured lenders.
On November 14, 2001, Ravens operating assets and liabilities were sold to
Fontaine Trailer Company, Inc. The cash proceeds of $14,418,000 were used to pay
expenses and the secured lenders.
The consolidated Company has liabilities greater than its assets. The Company
intends to sell SABI and the remaining assets of Albex. The cash generated from
those sales will be used to pay down the secured debt owed to FirstMerit.
However, certain unsecured vendors (mainly to Albex) have been notified that
they will most likely not be paid. As the Company winds down operations, its
shares will continue to have little value to stockholders.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $195,905 and $1,108,115 at March
31, 2002 and 2001, respectively. The Company entered into new financing terms
with FirstMerit that provided a $350, 000 line of credit (see footnote 7 to the
consolidated financial statements). The Company could have borrowed
approximately $140,743 more on the new line of credit at March 31, 2002. The
Company also arranged a $450,000 draw down note that can be utilized in fiscal
2003. The Company restructured all of the long term debt to FirstMerit into one
note on April 5, 2002. The long term debt owed to FirstMerit on March 31, 2002
was $3,522,051. The new note to FirstMerit is for five-years and is secured by
all of the company's inventory, receivables and fixed assets.
As discussed in footnote 7 Notes to the Consolidated Financial Statements, the
Company at March 31, 2001 was not in compliance with its bank covenants on cash
flow coverage and minimum net worth. The Company owed FirstMerit as of March 31,
2001, $14,039,750 on the $20,000,000 note secured by all the Company's inventory
and receivables and $5,118,023 on two long term notes secured by certain fixed
assets at Albex and Ravens.
13
The Company, through the sale of Ravens, the shut down of Albex and the sale of
the extrusion machinery and equipment, reduced the long-term debt to secured
lenders during fiscal 2002. The Company's intent is to sell the remaining assets
of Albex and then to sell SABI. The cash generated from these sales will be used
to pay down secured debt to FirstMerit. As liabilities exceed assets, there is
doubt about the Company's ability to continue to operate as a going concern.
The financial statements in this document have been prepared on a going concern
basis except for the discontinued operations assets and are stated at
management's estimate of the impaired value. Also, discontinued operations
liabilities include a reserve for cost associated with disposing of the Waterloo
Holding Company (Ravens) and Albex assets and liabilities.
2002
Net cash used by continuing operating activities of $401,054 was mainly caused
by operating losses. Inventories increased $193,725 as SABI provided for
potential shortages due to a supplier bankruptcy in 2002. SABI has been able to
replace the supplier with other sources. SABI is paying down extended terms
provided by its suppliers and has reduced accounts payable by $168,352.
Cash provided from investing activities resulted from the net sale of Ravens'
operating assets and liabilities of $14,418,000 and Albex's extrusion machinery
and equipment of $4,250,000. The proceeds from the sale of the assets were used
mainly to pay down the line of credit debt in default and the secured long-term
debt to the State of Ohio, the city of Kent bonds and to FirstMerit (see Note 8
to the Consolidated Financial Statements).
The Company borrowed an additional $750,000 in 2002 to fund all operations in
order to sell Albex and Ravens. The Company replaced the long-term notes to
FirstMerit with a five-year note on April 5, 2002. Mr. Jacob Pollock guaranteed
$3,250,000 on the new note to FirstMerit (see Note 7 to the Consolidated
Financial Statements).
Net cash flow provided by discontinued operations of $222,039 was generated by
the sales of Ravens and Albex and offset by operating losses.
DISCLOSURE CONTROLS AND PROCEDURES
As the Company's Chief Executive Officer and Chief Financial Officer, and in
accordance with the provisions of 17 C.R.R. Section 240.13a-14(c), I am
responsible for establishing and maintaining disclosure controls and procedures
to ensure that material information relating to the Company and its subsidiaries
is made known to me by others within the organization, especially in connection
with the preparation of the Company's Forms 10-K and Forms 10-Q, as to which I
must certify pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.
Within the last ninety (90) days, in preparation to file amendments to the
Company's Form 10-K for the fiscal year ended March 31, 2002 and its Form 10-Q
for the fiscal quarter ended June 30, 2002, I evaluated the effectiveness of the
Company's disclosure controls and procedures. Based upon that evaluation, it is
my view that these disclosure controls and procedures are effective to ensure
that all material information regarding the Company and it subsidiaries is made
known to me. Subsequent to the date of my evaluation, there have been no
significant changes in these internal controls; there have been no significant
changes in any other factors that could impact the effectiveness of these
internal controls; there have been no significant deficiencies or material
weaknesses in these internal controls; and thus it has not been necessary to
take any corrective action with regard thereto.
Jacob Pollock
14
2001
Net cash provided by continuing operating activities of $566,872 was generated
mainly by SABI decreasing inventory by $420,873 and extending payables by
$572,596. Offsetting the reduction in inventory and extension of payables was
the operating losses.
The Company made capital expenditures at SABI of approximately $77,000 used
mainly for the replacement of forklift trucks.
The Company used cash to pay-down long-term debt by $3,369,671 and notes payable
to the bank by $2,200,907. Net cash flow generated by discontinued operations of
$5,483,739 and proceeds from notes from related parties of $94,250 were used for
payments on long-term notes and bonds and note payables bank.
Cash generated from operating activities of discontinued operations was
$5,483,739 and was achieved by the reduction of inventory and receivables at
Ravens and Albex net of their operating losses. Ravens and Albex inventories and
receivables decreased by $8,658,051. Operating losses at Ravens and Albex net of
depreciation was $(2,315,410). The net reduction in current liabilities was
$(1,686,315) and was mainly used by paying warranty and taxes.
Cash used by discontinued operations for investing was $(827,747). Capital
expenditures at Ravens and Albex of $1,995,386 were offset by sale of fixed
assets at Albex of $939,838 and the use of the remaining funds held by the Kent
bond trustee of $227,801.
Capital expenditures at Albex were approximately $1,800,000, used mainly for the
expansion of the packaging and shipping department, upgrading the large
extrusion press, production dies and other manufacturing equipment. Ravens
invested approximately $194,000, used mainly for the installation of the
environmental equipment, totaling $174,000, at the Dover facility and the
remaining amount on other manufacturing equipment.
2000
Net cash used in continued operating activities of $(877,925) was primarily for
reducing accounts payable and increasing inventory at SABI. Capital Expenditures
at SABI were approximately $209,000 primarily for new computer hardware to
become Year 2000 compliant.
On April 8, 1999 and amended on September 30, 1999, the Company entered into a
long-term note with FirstMerit N.A. for $1,614,220. The funds were used by
Ravens to purchase the Knox facility equipment and for additional capital
equipment. Notes payable to the bank increased $4,172,948 to support the growth
in discontinued operations. Payments on long-term bond and notes payables were
$(1,962,030).
Cash used in discontinued operations was $(2,303,479). The cash used was mainly
for capital equipment at Albex and to fund the sales growth in inventory and
receivables.
15
Results of Operations
YEARS ENDED MARCH 31, 2002 AND 2001
Net sales of $8,080,448 were $1,376,567 or 14.5% lower than last year. Sales
were affected by the slow economy. Gross Profit of 8.2% was slightly lower than
2001 of 8.7%. Selling, general and administrative cost was reduced by 17%, as
management reduced costs. As a result of the reduction in costs and a settlement
of a vendor payable, operating loss from continuing operations decreased to
$(349,613) in 2002 from a loss of $(646,070) in 2001. In addition allocated RVM
corporate general and administrative expenses of $555,446 and $588,302
respectively were reclassified to continuing operations from Albex and Ravens in
2002 and 2001.
Loss from discontinued operations- Albex (see Note 4 to the Consolidated
Financial Statements) increased to $(5,393,247) in 2002 from $(4,199,004) in
2001. In August 2001 the Company announced a plan to close down Albex. Albex
continued to experience a decline in sales and no expectation of an upturn in
2002. Sales declined by 40% in 2002 for the same five month period in 2001. The
sales decline was due to the general economy recession, especially in the truck
trailer market. The Company recorded $(5,060,201) for a loss on sale of fixed
assets sold in December 2001, expenses to close down the facility and
managements estimate of loss related to the write down of impaired property,
plant and equipment.
Loss from discontinued operations of Ravens (see Note 4 to the Consolidated
Financial Statements) increased to $(3,726,745) in 2002 from ($403,803) in 2001.
On November 14, 2001 the Company sold all the operating assets and liabilities
to Fontaine Trailer Company, Inc. The continuing decline in the truck trailer
market and the inability to obtain long term financing led to the decision.
Sales declined in 2002, 49.5% to $13,403,826 for the same eight-month period
from last year. The Company recorded $(766,000) for the loss on the sale of
Ravens.
See Note 10 to the Consolidated Financial Statements for discussion on income
taxes. As part of Statement on Financial Standards Number 109 Accounting for
Income Taxes requirements, the Company provided a valuation reserve for the
estimated tax effect of not being able to utilize the tax loss carried forward
for future years. The result was a reduction in the income tax benefit in 2002
of $2,864,792, which increased the net loss for the year by the same amount.
Each year the valuation reserve will be reviewed.
The Company net loss for the year increased to $(10,235,605) in 2002 from
$(4,244,526) in 2001.
YEARS ENDED MARCH 31, 2001 AND 2000
Net sales decreased by 5.4% to $9,457,015 as SABI closed unprofitable sales
offices in North Dakota and Pennsylvania. Gross profits decreased to 8.7% in
2001 from 12.8% in 2000. Margins were impacted by higher material cost that
could not be passed onto customers. Selling and general administrative costs
decreased by 14%. Loss from continuing operations was $(646,070) in 2001
compared to a loss of $(462,603) in 2000.
Loss from discontinued operations - Albex was $(4,199,004) in 2001 compared to
$(5,024,199) in 2000. Net sales for Albex decreased 29.7% to 17,425,597 in 2001.
The loss in sales resulted from the recession in the truck trailer market that
started in April 2000. Management could not reduce cost as fast as sales
decreased and overall operating loss increased to $(2,366,561) in 2001 from
$(804,949) in 2000. In 2000, Albex recorded an impairment loss on machinery and
equipment of $2,573,016 resulting from the discontinuation of the use of
electric furnaces in the cast house.
16
Loss from discontinued operations - Ravens was $(403,803) in 2001 from a profit
of $4,666,522 in 2000. Ravens sales decreased 38.8% to $34,986,971 as unit
shipments were severely impacted by the recession in the truck trailer market.
Higher fuel prices, fleet owners' bankruptcies that made available used
equipment and tightening of credit by lenders reduced demand for new equipment.
The reduced sales volume as well as the lower margins to obtain those sales were
the main factors in the reduction of profit of $(5,070,325).
See Note 10 to the Consolidated Financial Statements for discussion on income
taxes. As part of Statement on Financial Standards Number 109 "Accounting for
Income Taxes" requirements, the Company provided a valuation reserve for the
estimated tax effect of not being able to utilize the tax loss carried forward
for future years (a part of the deferred tax asset on the balance sheet). Each
year the valuation reserve will be reviewed. An appropriate adjustment will be
made based upon the financial condition of the Company at that fiscal year end
and the ability of the Company to utilize the tax loss carried forward.
Inflation
The Company does not believe that inflation has had a material effect on the
results of operations for the periods presented because of low inflation levels
during these periods.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this Form 10-K 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.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Financial Instruments
The Company does not hold or issue derivative financial instruments for any
purposes.
Interest Rate Exposure
Based on the Company's overall interest rate exposure as of and during the year
ended March 31, 2002 a near-term change in interest rates, based on historical
interest rate movements, would not materially affect the Company's consolidated
financial position, results of operations or cash flows.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements: PAGES
-------
Report of Independent Auditors 18
Consolidated Balance Sheets, March 31, 2002 and 2001 19-20
Consolidated Statements of Operations
for the years ended March 31, 2002, 2001 and 2000 21
Consolidated Statements of Changes in Shareholders' (Deficit)
Equity for the years ended March 31, 2002, 2001 and 2000 22
Consolidated Statements of Cash Flows
for the years ended March 31, 2002, 2001 and 2000 23
Notes to Consolidated Financial Statements 24-42
Financial Statement Schedule:
II - Valuation and Qualifying Accounts
for the years ended March 31, 2002, 2001 and 2000 43
All other schedules are omitted because they are not applicable or the
required information is presented in the financial statements or the notes
thereto.
18
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors RVM Industries, Inc.
We have audited the accompanying consolidated balance sheet of RVM Industries,
Inc. and subsidiaries as of March 31, 2001, and the related consolidated
statements of operations, and changes in shareholders' equity and cash flows for
each of the two years in the period ended March 31, 2001. Our audit also
included the financial statement schedule listed in Item 8 for the years ended
March 31, 2001 and 2000. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of RVM
Industries, Inc. and subsidiaries at March 31, 2001, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended March 31, 2001, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule for the years ended March 31, 2001 and 2000, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As more fully described in Note 2, the Company
has incurred recurring operating losses and has a working capital deficiency. In
addition, the Company has not complied with certain covenants of loan agreements
with First Merit Bank, N.A. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of this uncertainty.
Ernst & Young, LLP
Akron, Ohio
July 9, 2001
19
Report of Independent Auditors
To the Shareholders and Board of Directors
RVM Industries, Inc.
We have audited the accompanying consolidated balance sheet of RVM Industries,
Inc. and subsidiaries as of March 31, 2002, and the related consolidated
statement of income, changes in shareholders' equity and cash flows for the year
then ended. Our audit also included the financial statement schedule listed in
Item 8. These consolidated financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audit. The consolidated financial statements of RVM Industries, Inc. and
subsidiaries as of March 31, 2001 and for the two years then ended were audited
by other auditors whose report dated July 9, 2001, included an explanatory
paragraph that described the going concern uncertainty discussed in Note 2 to
the consolidated financial statements.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of RVM
Industries, Inc. and subsidiaries as of March 31, 2002, and the consolidated
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As more fully described in Note 2,
the Company has incurred recurring operating losses and total liabilities exceed
total assets. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments to reflect the possible effects on the
recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of this uncertainty.
SALTZ, SHAMIS & GOLDFARB, INC.
Akron, Ohio
September 6, 2002
20
RVM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31
---------------------------
2002 2001
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 195,905 $ 1,108,115
Receivables:
Trade, net of allowance for doubtful accounts of $5,000 and $26,000 in
2002 and 2001 1,042,192 1,058,590
Related party 0 20,836
Inventories 1,446,316 1,252,591
Assets held for sale 2,870,000 0
Deferred income taxes, net of valuation allowance of $2,864,792 in 2002 and 0 146,235
$857,986 in 2001
Other current assets 24,691 19,169
Current assets of discontinued operations-Ravens 17,840 10,827,754
Current assets of discontinued operations- Albex 1,177,062 5,705,371
----------- -----------
Total current assets 6,774,006 20,138,661
Property, plant and equipment, net 537,154 681,026
Other assets 6,687 6,687
Non-current asset of discontinued operations-Ravens 1,535,016 10,837,283
Non-current assets of discontinued operations-Albex 0 12,038,946
----------- -----------
Total assets $ 8,852,863 $43,702,603
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
21
RVM INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS, Continued
MARCH 31
------------------------------
2002 2001
------------ ------------
LIABILITIES AND SHAREHOLDERS' (DEFICIT) Equity
Current liabilities:
Accounts payable--trade $ 1,427,129 $ 1,595,481
--related parties 0 8,432
Accrued expenses 212,744 146,386
Current portion of long-term debt 264,460 6,150
Debt in default 419,019 23,099,500
Current liabilities of discontinued operations-Ravens 1,378,470 5,764,768
Current liabilities of discontinued operations-Albex 2,149,066 4,563,446
------------ ------------
Total current liabilities 5,850,888 35,184,163
Long-term debt 3,483,579 431,364
Notes payable--related parties 0 527,800
Deferred income taxes 0 146,235
Non-current liabilities of discontinued operations-Albex 2,400,000 2,768,508
------------ ------------
Total liabilities 11,734,467 39,058,070
------------ ------------
Shareholders' (deficit) equity:
Preferred stock, $0.01 par value; authorized shares, 300,000; none
outstanding 0 0
Common stock, $0.01 par value; authorized shares, 3,000,000; issued and
outstanding: 1,937,505 shares at March 31, 2002, and at March 31, 2001
19,376 19,376
Additional capital 7,495,804 4,786,336
Retained (deficit) (10,396,784) (161,179)
------------ ------------
Total shareholders' (deficit) equity (2,881,604) 4,644,533
------------ ------------
Total liabilities and shareholders' (deficit) equity $ 8,852,863 $ 43,702,603
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
22
RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31
------------------------------------------------
2002 2001 2000
------------ ------------ ------------
Net sales $ 8,080,448 $ 9,457,015 $ 9,991,880
Cost of sales 7,417,606 8,629,587 8,716,178
------------ ------------ ------------
Gross profit 662,842 827,428 1,275,702
Selling general and administrative expenses 1,174,980 1,413,719 1,640,336
------------ ------------ ------------
(Loss) from operations (512,138) (586,291) (364,634)
Other income (expense):
Other income 194,919 40,258 0
Interest expense (25,927) (99,918) (95,526)
(Loss) on sales of property, plant and equipment (6,467) (119) (2,443)
------------ ------------ ------------
(Loss) from continuing operations before income (349,613) (646,070) (462,603)
taxes
Income tax provision: 0 (36,300) (51,200)
------------ ------------ ------------
Loss from continuing operations (349,613) (682,370) (513,803)
------------ ------------ ------------
Discontinued operations
(Loss) from operations of discontinued operations (5,149,744) (4,407,874) (242,914)
(Loss) from sale of discontinued operations (5,826,201) (194,933) (114,763)
Income tax benefit 1,089,953 1,040,651 336,029
------------ ------------ ------------
(Loss) on discontinued operations (9,885,992) (3,562,156) (21,648)
------------ ------------ ------------
Net (loss) $(10,235,605) $ (4,244,526) $ (535,451)
============ ============ ============
Basic and diluted (loss) per share
Continuing operations $ (0.18) $ (0.35) $ (0.27)
Discontinued operations $ (5.10) $ (1.84) $ (0.01)
------------ ------------ ------------
$ (5.28) $ (2.19) $ (0.28)
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
23
RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY
for the years ended March 31, 2002, 2001, and 2000
RETAINED
COMMON COMMON STOCK ADDITIONAL EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------------ --------------- --------------- --------------- --------------
Balance at March 31, 1999 1,937,005 $19,371 $4,784,341 $4,618,798 $9,422,510
------------ --------------- --------------- --------------- --------------
Net loss (535,451) (535,451)
Stock options exercised 500 5 1,995 2,000
------------ --------------- --------------- --------------- --------------
Balance at March 31, 2000 1,937,505 19,376 4,786,336 4,083,347 8,889,059
------------ --------------- --------------- --------------- --------------
Net loss (4,244,526) (4,244,526)
------------ --------------- --------------- --------------- --------------
Balance at March 31, 2001 1,937,505 19,376 4,786,336 (161,179) 4,644,533
------------ --------------- --------------- --------------- --------------
Net Loss (10,235,605) (10,235,605)
Contributed capital from related party 2,709,468 2,709,468
------------ --------------- --------------- --------------- --------------
Balance at March 31,2002 1,937,505 $19,376 $7,495,804 $(10,396,784) $(2,881,604)
============ =============== =============== =============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
24
RVM INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31
-----------------------------------------------------------
2002 2001 2000
----------------- ----------------- ------------------
Cash flows from operating activities:
Net (loss)................................................ $ (10,235,605) $ (4,244,526) $ (535,451)
Net loss from discontinued operations 9,885,992 3,562,156 21,648
Adjustments to reconcile net income (loss) from continuing
operations) to net cash provided by (used in) operating
activities:
Depreciation and amortization........................... 168,644 218,775 177,992
Deferred income taxes 0 22,300 (44,300)
(Decrease) increase in allowance for doubtful
accounts.............................................. (21,000) 16,000 0
Loss on disposition of property, plant and equipment.... 6,467 119 2,443
Increase (decrease) in cash from changes in:
Receivables --trade..................................... 37,398 (57,928) 189,487
--related party............................. 20,836 685 (2,622)
Inventories............................................. (193,725) 420,873 (382,164)
Other assets............................................ (5,522) (23,668) (17)
Accounts payable --trade................................ (168,352) 572,596 (270,239)
--Related parties...................... (8,432) (30,970) 18,747
Accrued expenses and other current liabilities.......... 112,245 110,460 (53,449)
----------------- ----------------- ------------------
Net cash (used in) provided by operating activities..... (401,054) 566,872 (877,925)
----------------- ----------------- ------------------
Cash flows from investing activities:
Capital expenditures...................................... (31,239) (77,290) (208,723)
Proceeds from disposition of fixed assets 0 6,500
Proceeds from sale of Ravens 14,418,000
Proceeds from sale of Albex 4,250,000
----------------- ----------------- ------------------
Net cash provided by (used in) investing activities..... 18,636,761 (70,790) (208,723)
----------------- ----------------- ------------------
Cash flows from financing activities:
(Payments on) long-term debt.............................. (3,943,491) (3,369,671) (1,378,680)
(Payments on) proceeds from notes payable--bank, net...... (19,698,516) (2,200,907) 3,814,798
Proceeds from (payments on) notes payable to related
parties................................................. 0 (94,250) (226,200)
Proceeds from long-term debt, net of issuance costs....... 4,272,051 0 1,642,841
Proceeds from stock options exercised..................... 0 0 2,000
----------------- ----------------- ------------------
Net cash (used in) provided by financing activities..... (19,369,956) (5,664,828) 3,854,759
----------------- ----------------- ------------------
Cash flow (used in) provided by continuing operations (1,134,249) (5,168,746) 2,768,111
Cash flow (used in) provided by discontinued operations 222,039 5,483,739 (2,303,479)
Net (decrease) increase in cash and cash equivalents......... (912,210) 314,993 464,632
Cash and cash equivalents at beginning of year............... 1,108,115 793,122 328,490
----------------- ----------------- ------------------
Cash and cash equivalents at end of year..................... $ 195,905 $ 1,108,115 $ 793,122
================= ================= ==================
The accompanying notes are an integral part of the consolidated financial
statements.
25
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS:
References to "the Company" refer to RVM and its wholly owned
subsidiaries: Ravens (as of November 14, 2001, known as Waterloo Holding
Company), Albex and SABI. Albex & Ravens (Waterloo Holding Company) are
presented as discontinued operations.
Ravens designed, manufactured, and sold aluminum truck trailers and
bodies, including dump trailers, dump bodies and flatbed trailers used in
the highway transportation industry throughout the U.S. and Canada.
Ravens also manufactured a steel dump trailer, which serves the
demolition market. These principal products were sold direct and through
a nationwide network of dealerships. Ravens currently has operating
facilities in North Carolina, Ohio, and Indiana. Ravens also sold a wide
variety of after-market parts for trucks and trailers, including parts
for its own trailers. Certain assets and certain liabilities of Ravens
along with the trade name of Ravens were sold on November 14, 2001 to the
Fontaine Trailer Corp., Inc. Ravens changed its name to Waterloo Holding
Company and controls the assets and liabilities not sold to Fontaine
Trailer Corp., Inc., including restricted cash of $1.46 million, other
assets of $91,000 accounts payable and accrued liabilities of $403,000,
and amount due buyer of $975,000.
Albex manufactured and sold custom and standard aluminum extruded
products to manufacturers, fabricators, and distributors in the
transportation, building and construction, consumer durables, and other
markets located mainly in the Mid-western portion of the U.S. Albex
operated a production facility located in Canton, Ohio. Albex began
production of aluminum billet in 1998 for its own use and for customers.
In 2000, the aluminum billet market suffered a dramatic drop in demand.
Coupled with the significant decrease in Ravens orders, Albex suspended
production at the Cast House in November 2000. In 2001 the markets for
both aluminum billet and extrusion continued to decrease significantly.
In August 2001, the Board of Directors approved a plan to shut down the
extrusion business and to sell the assets of both the cast house and the
extrusion business. In December 2001, the Company sold Albex extrusion
machinery and equipment to a non-related investor. At March 31, 3002,
assets and liabilities of discontinued operations - Albex consisted of
account receivable of $84,000 other assets of $2,700. Trade payable of
$1.83 million and related party note payable of $2.4 million.
SABI manufactures and sells aluminum blank and finished traffic control
signs to fabricators, distributors, and governmental agencies located
throughout the U.S., but primarily east of the Mississippi River. Its
production facility is in Akron, Ohio.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All inter-company transactions and
balances have been eliminated in consolidation.
26
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
FISCAL YEAR:
The fiscal year of RVM ends on March 31. References to 2002, 2001, and
2000 are for the years ended March 31, 2002, 2001, and 2000, respectively
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
(CONTINUED):
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States 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.
RECLASSIFICATION:
Certain amounts for the years ended March 31, 2001 and March 31, 2000
have been reclassified for comparative purposes to conform with the
presentation in the consolidated financial statements for the year ended
March 31, 2002, including the reporting of discontinued operations and
assets held for sale separate from continuing operations in the
consolidated balance sheets and statements of operations.
CASH EQUIVALENTS:
The Company considers all highly liquid investments with maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES:
Inventories are valued at the lower of cost or market. Inventories for
continuing operations in 2002 and 2001, respectively, were determined
under the first-in, first-out (FIFO) and weighted average methods of
valuation.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Grants received from
state and local governmental units are deducted in arriving at the
carrying amount of the respective assets. Major additions and betterments
are capitalized while maintenance and repairs, which do not improve or
extend the lives of the respective assets, are expensed currently.
Depreciation and amortization of property, plant and equipment, including
assets under capital lease obligations, are computed using the
straight-line method based on the estimated useful lives of the assets.
Accelerated depreciation methods are used for tax purposes. The estimated
useful lives of the assets for financial statement purposes are as
follows:
27
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
Buildings and improvements including leasehold improvements 10 to 40 years
Machinery and equipment 3 to 15 years
Office equipment 3 to 13 years
Vehicles 3 to 5 years
28
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
(CONTINUED):
PROPERTY, PLANT AND EQUIPMENT, Continued:
The carrying value of property, plant and equipment is evaluated if
circumstances indicate a possible impairment in value. If undiscounted
cash flows over the remaining depreciation period indicate the property,
plant and impairment may not be recoverable; the carrying value will be
reduced by the estimated shortfall of the cash flows on a discounted
basis.
ASSETS HELD FOR SALE
In August 2001, the Company's Board of Directors approved a plan to
shutdown Albex. On December 19, 2001, the Company sold Albex extrusion
building machinery and equipment. As of March 31, 2002, the Company had a
letter of intent for the sale of the Cast House building and equipment.
The sale closed in July 2002.
At March 31, 2002, in accordance with SFAS No. 144, the Company wrote
down the Cast House building and equipment to the fair market value based
on the selling price and an appraisal performed in April 2001. This write
down resulted in a loss of $3,696,391 for a net book value of $2,870,000.
DEBT DISCOUNT AND EXPENSE:
Debt discount and expense are amortized on a straight-line basis, which
does not differ materially from the interest method, by charges to
expense over periods from date of issue to date of maturity.
PRODUCT WARRANTY COSTS:
Anticipated costs related to product warranty are expensed when the
products are sold.
REVENUE RECOGNITION:
The Company recognizes revenue and related cost of sales for goods and
services when goods are shipped and services are rendered to customers.
SHIPPING AND HANDLING:
Shipping and handling costs are reflected in costs of sales.
ADVERTISING COSTS:
Costs incurred for producing and communicating advertising are expensed
when incurred.
29
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
(CONTINUED):
ADVERTISING COSTS, Continued:
Advertising costs for continuing operations included in selling, general
and administrative expense were $2,198, $3,823 and $6,626 in 2002, 2001,
and 2000, respectively.
INCOME TAXES:
The Company provides for income taxes based upon earnings reported for
financial statement purposes. Deferred tax assets and liabilities are
established for temporary differences between financial statement and tax
accounting bases using currently enacted tax rates in effect for the
years in which the differences are expected to reverse. A valuation
allowance is established for any deferred tax asset for which realization
is not likely.
EARNINGS PER SHARE:
Basic earnings per share is based on net income divided by the weighted
average number of common shares outstanding. Diluted earnings per share
reflect the potential dilution that could occur if all options or
contracts to issue common stock were exercised or converted. Weighted
average number of common shares outstanding was 1,937,505, 1,937,505 and
1,937,498 in 2002, 2001, and 2000, respectively. Basic earnings per share
for the Company is the same as diluted earnings per share.
RECENT ACCOUNTING PRONOUNCEMENTS:
In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 146 "Accounting
for Costs Associated with Exit or Disposal Activities. " SFAS No. 146"
generally require companies to recognize costs associates with the exit
activities when they are incurred rather than at the date of commitment
to the exit activity or disposal plan. SFAS No. 146 is effective for exit
or disposal activities initiated after December 31, 2002. The Company
elected to implement this standard for the disposal activities of selling
Ravens assets and certain liabilities and the exiting and sale of assets
of Albex for the year ended March 31, 2002.
In June 2002, FABS issued SFAS No. 145 which rescinded SFAS No. 4
"Reporting Gains and Losses from Extinguishment of Debt". SFAS No. 4 had
required companies to report gains and losses from extinguishment of debt
to be classified as an extraordinary item net of related income tax
effect. The Company early adopted SFAS 146 in the reporting of its gain
from the extinguishment of debt.
In July 2001, FASB issued 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.
30
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
(CONTINUED):
RECENT ACCOUNTING PRONOUNCEMENTS, Continued:
In August 2001, FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS 144 is effective for the fiscal
year beginning after December 15, 2001 for the 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 elected early adaption of SFAS 144
for the year ended March 31, 2002.
On April 1, 2001, the Company adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. 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.
2. GOING CONCERN OF THE COMPANY:
The accompanying 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, 2001 and at March 31, 2002, the Company was in violation of
certain of its covenants related to the loan agreement with FirstMerit
Bank, N.A. ("FirstMerit"). The default rendered this debt callable and as
a result, the debt was classified as a current liability on the balance
sheet at March 31, 2002 and 2001. The loan agreements with FirstMerit
were restructured during the year. The Company made significant payments
on the notes through the sale of Ravens and the Albex extrusion machinery
and equipment. The Company is in default as of March 31, 2002, on payment
of interest and principal of debentures in the amount of $419,019. The
Company restructured the debt with FirstMerit on April 5, 2002 and Mr.
Jacob Pollock guaranteed $3,250,000 of the debt. The Company has
liabilities in excess of assets and this raises substantial doubt as to
the Company's ability to continue as a going concern for a reasonable
period of time.
3. ACQUISITIONS AND DISPOSITIONS:
ACQUISITIONS:
On March 31, 1997, RVM purchased all the issued and outstanding shares of
capital stock of Albex and SABI from Jacob Pollock, the owner of all of
the shares of Albex and SABI and an officer, director, and the majority
shareholder (holding 87.16% of the outstanding common stock as of March
31, 1997) of RVM. This was a business combination by entities under the
common control of Jacob Pollock. The financial statements of prior years
were restated to reflect the combination on an "as if pooling of
interests" basis. The undistributed net loss of the S-corporations was
reclassified from accumulated deficit to additional capital. All
significant intercompany accounts and transactions have been eliminated.
31
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
3. ACQUISITIONS AND DISPOSITIONS (Continued):
ACQUISITIONS (Continued):
The purchase price of Albex and SABI shares was to be equal to seven times
the average earnings of Albex and SABI, computed for each company, before
interest, taxes plus depreciation and amortization and less capital
expenditures for the fiscal years ending March 31, 1999 and March 31,
2000, less all interest bearing debt, all determined in accordance with
generally accepted accounting principles (Albex and SABI Purchase Prices).
On March 30, 2000, the parties agreed to amend the purchase agreement to
change the calculation of the purchase price from each company separately
to the combined average earnings of both companies as originally defined.
Due to the loss at Albex exceeding the earnings at SABI, RVM is not
required to pay a dividend to Jacob Pollock for the purchase of Albex and
SABI.
On April 8, 1999, RVM acquired the assets and inventory of a steel trailer
manufacturing plant in Knox, Indiana, for approximately $1.2 million,
which was recorded using the purchase method of accounting. The plant
produces a steel trailer product line that enhances the current product
line and is sold through the Ravens distribution network.
DISPOSITIONS:
On November 14, 2001, the Company sold the operating assets and
liabilities of Ravens, resulting in a loss of $766,000, which has been
reported in loss from sale of discontinued operations.
On December 19, 2001, the Company sold the extrusion building, machinery
and equipment of Albex, resulting in a pre-tax loss of $1,175,057, which
has been reported in other income (expense), net. Additionally, in
October, 2001, the Company signed a letter of intent with a non-related
purchaser to sell the cast house land, building and equipment. The
estimated loss on the disposal of these remaining assets is $3,885,144.
The sale was completed in July, 2002.
4. DISCONTINUED OPERATIONS:
The dispositions of Ravens and Albex represent the disposal of segments
under SFAS 144. Accordingly, the revenue, costs and expenses, assets and
liabilities, and cash flows have been segregated in the Consolidated
Statement of Income, Consolidated Balance Sheet and Consolidated Statement
of Cash Flows.
32
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
4. DISCONTINUED OPERATIONS (Continued):
The following summarizes the results of discontinued operations:
2002 2001 2000
------------ ------------ ------------
Net Sales:
Albex $ 7,825,813 $ 17,425,597 $ 24,785,266
Ravens 13,403,846 34,986,971 57,209,348
------------ ------------ ------------
21,229,659 52,412,568 81,994,614
Pre-tax operating (loss) income:
Albex (2,004,767) (2,366,561) (804,949)
Ravens (3,619,293) 51,151 5,050,853
------------ ------------ ------------
(5,624,060) (2,315,410) 4,245,904
Interest expense (1,035,834) (2,426,947) (1,993,137)
Other income (loss) 1,510,150 (184,949) (37,428)
(Loss) gain on impaired machinery and
equipment 0 324,499 (2,573,016)
(Loss) gain on sale of discontinued
operations (5,826,201) 0 0
Income tax benefit 1,089,953 1,040,651 336,029
------------ ------------ ------------
Loss from discontinued operations $ (9,885,992) $ (3,562,156) $ (21,648)
============ ============ ============
Loss on impaired machinery and equipment refers to Albex's cast house
electric furnaces and associated equipment and facilities. After review
of the assets in 2000, the Company recognized an impairment charge of
$2,573,016. During 2001, a portion of these assets valued at $553,001
were sold for $877,500, which resulted in a gain on the sale of $324,499.
In 2002, Albex settled an accounts payable balance of $1,996,059 with an
unrelated supplier for $525,000. Accordingly, Albex recorded a gain on
the extinguishment of debt for $1,471,059, included in other income.
33
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
5. INVENTORIES:
Inventories for continuing operations consisted of the following at March
31:
2002 2001
---------------- ----------------
Raw materials $ 842,474 $ 704,427
Finished goods 603,842 548,164
---------------- ----------------
$ 1,446,316 $ 1,252,591
================ ================
6. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment for continuing operations consisted of the
following at March 31:
2002 2001
---------- ----------
Buildings and improvements $ 362,508 $ 362,508
Machinery and equipment 1,921,007 1,908,701
Office equipment 218,514 210,360
---------- ----------
2,502,029 2,481,569
Less accumulated depreciation and amortization 1,964,875 1,800,543
---------- ----------
$ 537,154 $ 681,026
========== ==========
34
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
7. LONG-TERM DEBT AND LONG TERM DEBT IN DEFAULT:
On April 5, 2002 FirstMerit Bank, N.A. (First Merit) amended the
Company's revolving note agreement. The amendment extends the maturity of
the revolving note from March 31, 2002 to March 31, 2003 and decreases
the interest from FirstMerit's prime rate plus .75% to FirstMerit's prime
rate plus .50%. The maximum amount of the loan is $350,0000.
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
for $3,540,977. Interest on the loan is fixed at 6.0%, interest only
payments due until October 2002, with monthly interest and principal
payments made on a twenty-year amortization schedule. 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 rate is fixed at 7.0% with all interest and principal
due on September 30, 2002. The Company did not borrow on this note at
March 31, 2002.
Jacob Pollock provided a $3,250,000 personal guarantee on the above loan
amendment.
On October 3, 2001, FirstMerit bank amended the Company's revolving note
agreement. The amended agreement extends the maturity of the revolving
note from August 31, 2001 to March 31, 2002, increases the interest rate
from FirstMerit's prime rate to FirstMerit's prime rate plus .75%, and
amends the maximum outstanding balance of revolving loans to $11.0
million; however, when the Company sells the operations of Ravens, the
maximum revolving loans available shall not exceed $9.0 million. At March
31, 2002 the company owed $1,707,089.
On October 3, 2001, FirstMerit bank amended the Company's fixed asset
term note agreement. The amended agreement reduces the maturity from
September 30, 2006 to March 31, 2002 and increases the interest rate from
FirstMerit's prime rate to 7.75%. Monthly payments will be made to
FirstMerit calculated on a fifteen-year amortization at 7.75%. At March
31,2002, the Company owed $1,274,219.
On July 3, 2001, the Company entered into a $750,000 short-term note with
FirstMerit. Interest is 9.0% and the note matured on August 2, 2001. On
October 3, 2001, FirstMerit amended the Company's short-term note
agreement. The amended agreement extends the maturity from August 2, 2001
to March 31, 2002. At March31, 2002, the Company owed $750,000
The amendment on October 3, 2001, also established new guarantees and
mortgages, documented FirstMerit's consent to the sale of Ravens and SABI
and the liquidation of Albex, and established new covenants.
35
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
7. LONG TERM DEBT AND DEBT IN DEFAULT, Continued:
On September 30, 1999, the Company amended its line of credit agreement
with FirstMerit. The agreement provides for borrowings up to $20,000,000
based on eligible accounts receivable and inventories expiring on August
31, 2001. Interest is at FirstMerit's prime rate (7.25% at March 31,
2001) minus 1/4%. The agreement is collateralized by accounts receivable,
inventory, equipment, cash, intangibles and certain real estate. There
are covenants relating to the payment of dividends, acquiring treasury
stock, the creation of additional indebtedness, minimum tangible net
worth, and cash flow coverage. The Company was not in compliance with the
cash flow coverage for year ending March 31, 2001 and the minimum net
worth covenant for the year ended March 31, 2001. The Company owed
$14,039,750 under this agreement at March 31, 2001.
On September 30, 1997, the Company and FirstMerit entered into a
$5,000,000 fixed asset term loan agreement for the financing of certain
existing and to be acquired fixed assets. Interest is at FirstMerit's
prime rate. Repayment terms are interest only for two years and principal
plus interest for seven years. The Company owed $3,988,075 under this
agreement at March 31, 2001. This note was also in default at March 31,
2001 because the Company was not in compliance with two of the loan's
covenants.
Jacob Pollock provided a $2,500,000 personal guarantee on the above loan
agreements.
On April 8, 1999, the Company entered into a long-term note with
FirstMerit for $1,100,000, which was amended on September 30, 1999 to
increase the note to $1,614,200. The funds were used by Ravens to
purchase the Knox facility assets and to purchase additional capital
equipment. The note is payable in a monthly installment through September
30, 2004 plus interest at the lender's prime rate. The Company owed
$1,129,948 under this agreement on March 31, 2001. This note was also in
default at March 31, 2001 because the Company was not in compliance with
two of the loan's covenants.
As a result of the FirstMerit debt being in default, a letter of credit
from FirstMerit and other long-term debt amounting to $3,941,727 was in
default as of March 31, 2001. This debt has been classified as a current
liability on the balance sheet (see Note 8 to the Consolidated Financial
Statements).
36
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
8. FINANCING OBLIGATIONS:
March 31,
2002 2001
-------------------- --------------------
Line of credit agreement $ 1,707,089 $14,039,750
City of Kent, Ohio(a) 0 2,650,000
Department of Development of the State of Ohio(b) 0 726,727
State of Ohio Economic Development Revenue Bonds(c) 0 565,000
First Merit Short Term Note 750,000
Fixed asset term loan agreement 1,274,219 3,988,075
7% subordinated debentures, payable in 2004, net of unamortized
discount of $30,301 419,019 414,633
Knox Acquisition Note Payable 0 1,129,948
Other 16,731 22,881
-------------------- --------------------
4,167,058 23,537,014
Debt in default 419,019 23,099,500
-------------------- --------------------
3,748,039 437,514
Less current portion 264,460 6,150
-------------------- --------------------
$ 3,483,579 $ 431,364
==================== ====================
(a) City of Kent, Ohio Variable Rate Demand Industrial Development Revenue
Bonds due in annual principal payments of $500,000 in 2002 through 2005,
$150,000 in 2006 through 2008, and $100,000 in 2009 and 2010. Interest is
payable monthly and the rate varies weekly (3.8% at March 31, 2001).
Payment to bondholders is guaranteed by a letter of credit in an amount
equal to outstanding principal plus specified interest ($2,702,274 at
March 31, 2001) expiring December 15, 2001, issued by FirstMerit Bank,
N.A. at a rate of 1% per annum and collateralized by all equipment owned
by Ravens and by the real estate at the Kent facility and
cross-collateralized with the lines of credit described in Note 7.
Proceeds from the loan agreement are held by a trustee and released to
Ravens for approved capital expenditures at the Kent facility. This debt
was in default at March 31, 2001 due to the acceleration of payment
required by the FirstMerit debt obligation and was paid in full during
2002. 8.
37
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
8. FINANCING OBLIGATIONS (Continued):
(b) Chapter 166 Direct Loan payable to the Department of Development
of the State of Ohio, due in monthly installments of $35,566
including interest at 3.0%. The loan matures December 2002 and is
collateralized by substantially all machinery and equipment of
Albex, the corporate guarantees of Ravens and SABI, and the
personal guarantees of Jacob Pollock, Richard D. Pollock and
Gertrude Pollock, the wife of Jacob Pollock. This debt is in
default at March 31, 2001 due to the acceleration of payment
required by the FirstMerit debt obligations and was paid in full
during 2002.
(c) State of Ohio Economic Development Revenue Bonds are subject to a
mandatory semiannual redemption schedule, which requires monthly
escrow payments of approximately $33,000 including interest at
5.6%. The bonds mature June 1, 2002 and are collateralized by
substantially all machinery and equipment of Albex, the corporate
guarantees of Ravens and SABI, and the personal guarantees of
Jacob Pollock, Richard D. Pollock and Gertrude Pollock. These
bonds were paid in full in 2002.
The Chapter 166 Direct Loan and the State of Ohio Economic
Development Revenue Bonds contain covenants which limit Albex in
certain areas including, among others, total long-term debt to
tangible net worth, minimum tangible net worth and dividend
payments. RVM's financial statements in place of Albex's for the
purpose of the financial covenant calculations.
Maturities for long-term debt are:
Debt Listed Albex and SABI
Above Notes (1) Total
-------------- --------------- ---------------
2003 $ 683,479 $ 0 $ 683,479
2004 107,854 0 107,854
2005 111,972 0 111,972
2006 114,636 2,400,000 2,514,636
2007 3,149,117 0 3,149,117
-------------- --------------- ---------------
$ 4,167,058 $ 2,400,000 $ 6,567,058
============== =============== ===============
(1) See Note 13
38
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
9. COMMITMENTS AND 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. (Fontaine). 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 certain assets and liabilities of Ravens to
Fontaine.
At March 31, 2001 Ravens was contingently liable as guarantor on certain
sales contracts of customers in the amount of approximately $406,000.
Contracts are collateralized by the units sold. No reserve for losses has
been provided because Ravens has incurred an insignificant amount of
losses related to guarantee sales contracts, which generally have
maturities less than five years. Ravens guarantees 10-20% of the
outstanding balance owed to the finance company by the customers. Ravens
recognizes revenue at the time the trailers are sold.
The Company and Albex in August 2001 were named as 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 defense and intends to assert them if a trial is necessary. The
Company also believes any settlement is within the limits of its
insurance policies.
The Company, Albex and an unrelated party were defendants in a wrongful
death and employer intentional tort claim. In July 2001, the plaintiff,
the Company, and the Company's insurance carriers settled this claim
within the limits of the Company's insurance policies and therefore there
was not any impact on the Company's financial position and results of
operations and cash flows.
Albex has been named in a number of unsecured creditor claims for amounts
due. The proceeds from the sale of all assets of Albex will be used to
pay down the debt to the secured creditors. The Company had previously
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 $2,400,000 and the appraisal for the land and buildings
as of May 3, 2001 was $1,820,000.
The Company is also involved in other claims and litigation arising in
the ordinary course of business. Management believes that the outcome of
such claims will not have a material adverse effect on the Company's
financial position and results of operations and cash flows.
39
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
10. INCOME TAXES:
The provision (benefit) for income taxes consists of the following:
2002 2001 2000
----------------- ----------------- ------------------
Continuing operations:
Current:
Federal $ 0 $ 36,300 $ 95,500
Deferred 0 0 (44,300)
----------------- ----------------- ------------------
$ 0 $ 36,300 $ 51,200
----------------- ----------------- ------------------
Discontinued operations:
Current:
Federal (1,001,000) (1,040,651) (336,029)
State (88,953) 0 0
----------------- ----------------- ------------------
(1,089,953) (1,040,651) (336,029)
----------------- ----------------- ------------------
$ (1,089,953) $ (1,004,352) $ (284,829)
================= ================= ==================
The sources of temporary differences, which make up the deferred tax
balances are as follows:
March 31 2002 2001
------------------- ------------------
Deferred income tax assets:
Warranty accruals $ 0 $ 301,500
Vacation 0 62,400
Deferred interest and amortization of
premium or discount on debt 0 271,300
Allowance for doubtful accounts 1,850 42,600
Inventory 9,250 175,000
NOL carry forward 2,087,707 1,936,600
Other non-deductible accruals 26,327 134,200
Shutdown and Asset loss reserve 1,513,775 0
------------------- ------------------
Total deferred tax assets 3,638,909 2,923,600
------------------- ------------------
Deferred tax liabilities:
Depreciable property (774,117) (2,026,900)
Pension 0 (15,200)
Other 0 (23,500)
------------------- ------------------
Total deferred tax liabilities (774,117) (2,065,600)
------------------- ------------------
Net deferred tax asset 2,864,792 858,000
Deferred tax valuation allowance (2,864,792) (858,000)
------------------- ------------------
Net deferred income taxes $ 0 $ 0
=================== ==================
40
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
10. INCOME TAXES, Continued:
At March 31, 2002 and 2001, the Company had available net operating loss
carryforwards of approximately $8,574,217 and $5,696,000 respectively for
federal income tax purposes, which are subject to limitations based on the
Companies' ability to generate future taxable income. These loss
carryforwards expire in years through 2022.
As there is not assurance of future income, a 100% valuation allowance in
both 2002 and 2001 has been established against the Company's net deferred
tax assets. The Company will continue to evaluate the necessity for such
valuation allowance in the future.
A reconciliation of the federal statutory income tax rate to the effective
rate follows:
2002 2001 2000
--------------------------- --------------------------- ----------------------------
Amount Percent Amount Percent Amount Percent
-------------- ----------- ------------- ------------ -------------- ------------
Statutory amount and rate $(3,480,106) (34.0%) $ (1,784,600) (34.0%) $(278,895) (34.0%)
Effect of:
State taxes (net of
utilization of tax loss carry 88,953 0.8 (95,900) (1.8) (15,800) (1.9)
forwards)
Change in valuation allowance 2,006,792 19.6 858,000 16.3 0 0.0
Non-deductible expenses 2,124 0 21,500 .4 14,100 1.7
Other 292,284 2.9 (3,352) 0.0 (4,234) (0.5)
-------------- ----------- ------------- ------------ -------------- ------------
$ (1,089,953) (10.7%) $ (1,004,352) (19.1%) $(284,829) (34.7%)
============== =========== ============= ============ ============== ============
11. RETIREMENT PLANS:
RVM sponsors defined contribution plans covering salaried and non-union
hourly employees of the Company. The purpose of the plans is to provide
financial security during retirement by providing employees with an
incentive to make regular savings. Contributions of participating
employees are matched on the basis of the percentages specified in the
respective plans. The cost of such employer contributions included in
discontinued operations was $41,149, $133,071, $181,557 for 2002, 2001
and 2000, respectively. These plans were frozen December 31, 2001.
SABI participates in the GMP and Employers Pension Fund, a multi-employer
defined benefit pension plan that covers all of its hourly bargaining
unit employees. Pension expense under this plan amounted to $15,978,
$20,280, and $18,733, in 2002, 2001 and 2000 respectively. These
contributions are determined in accordance with the provisions of a
negotiated labor contract and generally are based on the amount of wages
earned. Information as to SABI's portion of the accumulated plan
benefits, plan net assets and unfunded vested benefits, if any, is not
determinable.
41
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
11. RETIREMENT PLANS, Continued:
Ravens has a defined benefit pension plan covering approximately 24
hourly employees at its service facility in Dover, Ohio. The plan
provides benefits of specified amounts for each year of service. Plan
assets at fair value exceeded the projected benefit obligation at March
31, 2002 and 2001. The plan was terminated at November 14, 2001 when
Ravens was sold. The Company is currently evaluating the options to fund
the pension plan in the future.
12. LEASE COMMITMENTS:
The Company leases certain of its office and manufacturing facilities
under various leasing arrangements with related parties (see Note 13 to
the Consolidated Financial Statements). The future minimum lease payments
from continuing operations, by year and in the aggregate, under
noncancelable operating leases with initial or remaining noncancelable
lease terms in excess of one year, consisted of the following at March
31, 2002:
2003....................................... $149,700
2004....................................... 27,500
2005....................................... 0
2006....................................... 0
2007....................................... 0
Thereafter................................. 0
---------------
Total minimum payments..................... $177,200
===============
Rent expense was approximately $202,000 per year for continuing
operations in 2002, 2001 and 2000.
13. RELATED PARTY TRANSACTIONS:
At March 31, 2001, Albex was the obligor on a note payable to Jacob
Pollock in the principal amount of $2,900,000 (Albex Note). SABI was the
obligor on a note payable to J. Pollock & Company, and assigned to Jacob
Pollock in the principal amount of $1,131,000 (SABI Note).
The Notes required payment over a five-year term, with interest thereon,
at the rate of seven percent (7%) annum, accruing from and after April 1,
1997.
The Albex note payable balance due to Mr. Pollock was $2,768,508 at March
31, 2001. On December 14, 2001 the note was restructured and all interest
due to date of $524,217 was forgiven. In addition, $368,508 of principal
was also forgiven. The interest and principal forgiven was treated as
additional paid in capital. Principal on the note was $2,400,000 at March
31, 2002. The new note requires payment over a five-year term with
interest at a rate of 5% per annum due annually. These payments have been
deferred indefinitely.
42
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
13. RELATED PARTY TRANSACTIONS, Continued:
The SABI note payable to Mr. Pollock was $527,800 on March 31, 2001. On
December 14, 2001 the note was restructured and all interest ($45,887) and
principal was forgiven. The interest and principal forgiven was treated as
additional paid in capital.
On February 1, 2001 Albex entered into a Cognovit Demand Promissory Note
with Mr. Jacob Pollock. The note principal was $718,056. Interest accrued
at a rate of 7% per annum and interest and principal was payable on
demand. On December 14, 2001, the note and accrued interest was forgiven
and treated as paid in capital.
Payments with respect to these Notes are subordinated to the repayment of
substantially all other notes payable and long-term debt.
The Company leases office and manufacturing space from a corporation in
which Richard Pollock and Bruce Pollock are shareholders. The lease was
extended one year to December 31, 2002 at a monthly base rent of $6,500
with annual increases determined by the change in the Consumer Price
Index, plus the Company's share of utilities, real estate taxes,
insurance, and property maintenance. The Company paid approximately
$129,000 $128,539 and $129,000,in 2002, 2001, and 2000 respectively.
Richard Pollock and Bruce Pollock are sons of Jacob Pollock.
Since September 1, 2000, the Company has leased office space from 753 W.
Waterloo Rd. Limited Partnership, of which Jacob Pollock and his wife are
partners. The lease is for three years expiring August 31, 2003 at a
monthly base rent of $5,500 plus the Company's share of utilities, real
estate taxes, insurance, and property maintenance. The Company paid
$84,000, $82,446, and $83,882, in 2002, 2001, and 2000, respectively.
The Company hired temporary personnel from Flex-Team Incorporated, wholly
owned by the Jacob Pollock Irrevocable Trust. Amounts paid by the Company
totaled $152,477, $88,570, $378,090, in 2002, 2001, and 2000 respectively.
$87,175, $75,607, and $30,324, was owed at March 31, 2002, 2001, and 2000
respectively.
The Company purchased aluminum materials from The Aluminum Warehouse,
Inc., owned by Richard D. Pollock Living Trust U/A/D 8/2/94 and Richard D.
Pollock Irrevocable Trust U/A/D 1/4/94, totaling $350,000, $103,076, and
$117,906 in 2002, 2001, and 2000 respectively. The Company sold aluminum
extrusions to The Aluminum Warehouse, Inc. totaling $0, $220,880, and
$536,529 in 2002, 2001, and 2002 respectively. $0, $20,836, and $147,826
was receivable at March 31, 2002, 2001, and 2000 respectively.
See Note 3 regarding acquisitions from and notes payable to related
parties.
Management believes that the terms of the above transactions are
comparable to those that would have been obtainable from unaffiliated
sources.
43
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
14. STOCK OPTIONS:
RVM's 1993 Stock Option Plan (Plan) provides for the granting of options
to acquire up to 150,000 shares of the Company's common stock. The Plan
authorizes the granting of incentive stock options to employees of the
Company and nonqualified stock options to employees, officers and
directors, whether or not on the Company's payroll or otherwise paid for
services. The Plan provides that the option price shall not be less than
100% of the current market price of the stock on the date of the grant,
that the option is exercisable when granted, and that the term of the
option shall be fixed at the date of the grant and shall not exceed ten
years. The Plan terminates on July 7, 2003. At March 31, 2001, there were
107,979 shares available to be optioned under the Plan. The Company has
selected the disclosure-only option of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123). In
accordance with SFAS 123, RVM accounts for its Stock Option Plan in
accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25), and related Interpretations.
Under APB 25, because the exercise price of the Company's employee stock
options equals or exceeds the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
A summary of the Company's stock option activity and related information
for the years ended March 31 follows:
2002 2001 2000
-------------------- --------------------- -------------------------
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ------ ------- ------- ------- -------
Outstanding at beginning of year 19,616 $12.24 32,021 $ 12.15 39,271 $ 10.65
Granted 0
Exercised (500) 4.00
Forfeited or cancelled (19,616) 12.24 (12,405) 12.00 (6,750) 4.00
------- ------- ------
Outstanding and exercisable at
end of year 0 0 19,616 $ 12.24 32,021 $ 12.15
======= ====== ======= ======= ====== =======
15. CONCENTRATIONS:
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of accounts receivable.
The Company performs ongoing credit evaluations of its customers and does
not usually require collateral. The Company maintains a reserve for
potential credit losses.
The principal raw material used by the Company is aluminum. The Company
purchases aluminum from several suppliers and believes that there are
ready supplies of aluminum available for its needs at acceptable prices.
A significant increase in the price or an interruption in the supply of
aluminum could have a material adverse effect on the Company's operating
results.
44
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts reported in the balance sheets for cash and cash
equivalents, accounts receivable, funds held by trustee for capital
expenditures, note payable, long term debt and accounts payable
approximate their fair market values.
17. IMPAIRMENT OF MACHINERY & EQUIPMENT:
During the fourth quarter of 2000, the Company reviewed its assets at
Albex and determined that certain assets would no longer be used in the
business. These assets consisted primarily of certain machinery and
equipment. Albex originally purchased specific equipment for use to
produce aluminum billet in the Cast House operation. The Company had
identified equipment with a net book value of approximately $3,217,000
that will not be required and was removed from service in the fourth
quarter of fiscal year 2000. The equipment had an estimated net
realizable value (sale of the assets less all cost associated with the
sale and removal of the assets) of approximately $644,000. The Company
recognized a $2,573,016 ($1,698,188 net of tax) impairment charge related
to the machinery and equipment. The equipment removed from service was
either unreliable and was more expensive to operate or added cost to the
manufacturing process. The Albex extrusion business was adversely
affected by the unreliable supply of billet from the Cast House. As a
result of an extensive review by management of the Cast House operation,
the Company installed new production equipment that reduced operating
cost and was more reliable than the equipment replaced. The new equipment
eliminated other manufacturing processes previously required and the
machinery used in those processes was retired. The equipment was
installed in the third quarter and started operations in the fourth
quarter of 2000.
During 2001, Assets Held for Sale of $553,001 were sold for $877,500,
which resulted in a gain on the sale of $324,499. As planned in 2001, the
gas furnaces in the cast house increased the reliability of the volume
output and reduced the operating cost. However, a world wide surplus of
aluminum billet eliminated the potential of selling the excess aluminum
billet capacity to outside customers. In addition, Albex's lower
extrusion sales also reduced the demand for billet from the cast house.
The cast house production was suspended in November 2000.
18. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for interest expense were:
2002 2001 2000
---------- ---------- ----------
Continued operations $ 25,927 $ 99,918 $ 95,526
Discontinued operations 1,035,834 2,125,585 1,804,695
---------- ---------- ----------
$1,061,761 $2,225,503 $1,900,221
========== ========== ==========
45
RVM INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
MARCH 31, 2002
----------
18. SUPPLEMENTAL CASH FLOW INFORMATION, Continued:
Cash payments for income taxes were:
2002 2001 2000
-------- -------- --------
Continued operations $ 0 $ 0 $ 0
Discontinued operations 0 217,296 336,436
-------- -------- --------
$ 0 $217,296 $336,436
======== ======== ========
NON-CASH TRANSACTIONS:
During November 2001, Mr. Jacob Pollock paid a debt settlement of $525,000
due to an outside supplier on behalf of the Company. The full amount was
recognized as paid-in capital.
During December 2001, Mr. Jacob Pollock forgave $1,614,364 of debt in
addition to $570,104 of accrued interest owed to him by the Company. The
forgiveness of the total liability of $2,184,468 was recognized as paid-in
capital.
19. BUSINESS SEGMENTS:
SABI is the only business segment now operating. See Footnote 3 for
discontinued segments Ravens and Albex.
46
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
for the years ended March 31, 2002, 2001 and 2000
Column A Column B Column C Column D Column E
- ------------------------------------- ------------- -------------------------------- -------------- -------------
Additions
--------------------------------
Balance at Charged to Charged to Balance at
Beginning Cost and Other End of
Description of Period Expenses Accounts Deductions Period
(A)
- ------------------------------------- ------------- -------------- -------------- -------------- -------------
Allowance for doubtful accounts,
continuing operations:
Period ended:
March 31, 2002 $ 26,000 $ 0 $ 0 $ 21,000 $ 5,000
March 31, 2001 10,000 25,629 0 9,629 26,000
March 31, 2000 10,000 10,529 0 10,529 10,000
Allowance for doubtful accounts,
discontinued operations:
Period ended:
March 31, 2002 $ 99,199 $ 21,119 $ 0 $ 140,318 $ 0
March 31, 2001 118,000 84,197 0 102,998 99,199
March 31, 2000 97,000 59,869 0 38,869 118,000
(A) Uncollectible accounts written off.
Warranty, included in discontinued operations:
Balance at Charge to Balance at
Beginning of Accrual and Actual End of
Warranty Period Expense Expenses Period
- -------------------------------------- --------------- -------------- --------------- ---------------
Period ended:
November 14, 2001 (Note 1) $ 845,107 $ 143,903 $303,119 $ 685,891
March 31, 2001 1,076,447 427,650 658,990 845,107
March 31, 2000 850,000 1,032,534 806,087 1,076,447
Note 1: Amount sold to Fontaine
Trailer Company on
Nov. 14, 2001
47
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On December 17, 2001, Ernst & Young LLP (E&Y) resigned as independent
auditors of RVM Industries, Inc. (the "Company"). In July 2002, SS&G Financial
Services, Inc. was engaged to audit the Company's financial statements.
In connection with the audit for each of the two fiscal years ended March
31, 2001, and in the subsequent period through December 17, 2001, there were no
disagreements with E&Y on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures, which
disagreement, if not resolved to the satisfaction of E&Y, would have caused E&Y
to make reference in connection with its report on the Company's financial
statements of the subject matter of the disagreement.
The audit report of Ernst & Young LLP on our consolidated financial
statements as of and for the fiscal year ended March 31, 2001 contained a
statement that our operating losses and working capital deficiency raises
substantial doubt about our ability to continue as a going concern.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Registrant are listed below:
Name Age Since Position
- ---------------------------- -------- --------------------------- ----------------------------------
Jacob Pollock 78 May 3, 1991 Chairman of the Board, Chief
(term expires in 2002) Executive Officer, and Treasurer
Richard D. Pollock 46 May 3, 1991 President and Director
(term expires in 2004)
C. Stephen Clegg 51 May 3, 1991 Director
(term expires in 2004)
Louis N. Strike 55 September 9, 1998 Director
(term expires in 2003)
All years in Item 10 refer to calendar years.
48
Mr. Jacob Pollock has been Chairman of the Board of Directors, Chief Executive
Officer, and Treasurer since May 3, 1991, the date he acquired controlling
interest in the Company. He has been Chairman of the Board and President of J.
Pollock & Company, a company principally engaged in the sale of aluminum,
private investment, and consulting, since April 1989. He was Chief Executive
Officer of Barmet Aluminum Corporation, an aluminum company, from 1949-1989. He
serves as a Director of several nonpublic companies.
Mr. Richard Pollock has served as President of RVM since March 31, 1997,
President of Albex since May 1991 and as a Vice President of J. Pollock &
Company since February 1990. Prior to joining J. Pollock & Company, he was
employed as a Vice President and then President of Barmet Aluminum Corporation
for more than five years. Richard Pollock is the son of Jacob Pollock.
Mr. Clegg has served as Chairman of the Board of Directors and Chief Executive
Officer of Diamond Home Services, Inc. since February 1996. He has served as
Chairman of the Board of Directors of Mid-West Spring Manufacturing Company,
Inc. and Globe Building Materials, Inc. for more than five years, and he is a
Director of Birmingham Steel Corporation.
Mr. Strike has served as Managing Director and Partner of Ballinger, Strike and
Associates LLP, a management consulting firm, from January 1996 to present; and
as President, CEO and Chairman of Modern Fold, Inc. a leading manufacturer of
moving walls principally for hotels, schools, churches, and commercial office
buildings, from February 1998 to present. He previously served as President of
CINPAC, Inc., a food processing and packaging contractor, from April 1992 to
December 1995.
Officers serve at the pleasure of the Board of Directors without specific terms
of office.
Mr. George resigned from the Board of Directors on September 7, 2001. Mr. George
was not in any disagreements with the Company on any issues.
Mr. Strike resigned from the Board of Directors on August 12, 2002. Mr. Strike
was not in any disagreements with the Company on any issues.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of copies of Forms 3, 4 and 5 furnished to RVM during
or with respect to the fiscal year ended March 31, 2002, RVM is not aware of any
person subject to Section 16 of the Securities Exchange Act of 1934 with respect
to RVM that failed to file on a timely basis reports required by Section 16(a)
during the most recent fiscal year or prior fiscal years.
49
ITEM 11. EXECUTIVE COMPENSATION
The following table discloses compensation in excess of $100,000 awarded to,
earned by or paid to any executive officer:
Fiscal All Other Compensation
Name and Principal Position Year Salary Bonus Note 1& 2
- ------------------------------------- ----------------- ---------------- ----------------- --------------------------
Jacob Pollock 2002 $125,000 $ 0 $ 0
Chief Executive Officer 2001 125,000 0 0
2000 129,808 0 0
Richard D. Pollock 2002 193,000 0 376,860
President 2001 193,000 0 4,825
2000 203,776 0 5,011
James R. McCourt Note 3 2002 135,000 0 287,700
2001 136,267 0 3,406
(1) Amount contributed to the named person's 401(k) plan account for Mr.
Richard Pollock in 2001 and 2000 and for Mr. James McCourt in 2001.
(2) Mr. Pollock and Mr. McCourt were provided a key executive retention and
compensation package in 2002. The package included a bonus to remain
through the sale of Ravens and the close down and sale of Albex and
one-year base salary as severance pay paid prior to the end of 2002.
(3) Mr. McCourt resigned as Chief Financial Officer of the Company on
February 8, 2002 and remains a consultant at will with the company.
In 1993, RVM adopted a Stock Option Plan, which provides for the granting of
options to acquire up to 50,000 shares of its common stock. The Plan authorizes
the granting of incentive stock options to employees of the Company and
nonqualified stock options to employees, officers and directors, whether or not
on the Company's payroll or otherwise paid for services. The Plan provides that
the option price shall not be less than 100% (110% in the case of a person
owning more than 10% of the Company's stock) of the current market price of the
stock on the date of the grant and that the term of the option shall be fixed at
the date of the grant. The Plan terminates on July 7, 2003.
Directors of RVM are paid $1,000 for Board of Directors meetings which they
attend. Additional compensation is not paid for committee meetings. In 1998, Mr.
Clegg and Mr. George were each granted options to purchase 1,000 shares of
common stock. The options have an exercise price of $12.00 per share and expire
on March 27, 2003. As of March 31, 2002 the stock options were not worth
anything.
50
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of RVM's Board of Directors consists of Jacob
Pollock, Chief Executive Officer, and C. Stephen Clegg. Mr. Pollock is a
Director and Mr. Clegg is Chairman of the Board of Directors of Mid-West Spring
Manufacturing Company, Inc. and Diamond Home Services, Inc., public companies,
and Globe Building Products, Inc., a nonpublic company. Mr. Pollock is a member
of the Compensation and Benefits Committee of the Board of Directors of Mid-West
Spring Manufacturing Company, Inc.
REPORT OF COMPENSATION COMMITTEE
The Committee has not formulated policies for compensation to Mr. Pollock or
other executive officers, which relate compensation to corporate performance.
The compensation of each executive officer is determined by negotiation between
the executive officer and Mr. Pollock subject to the approval of the Committee
and the Board of Directors and FirstMerit Bank.
By: Jacob Pollock, Chairman
C. Stephen Clegg
PERFORMANCE GRAPH
The following line graph shows a comparison of cumulative total returns,
assuming reinvestment of dividends, for a hypothetical investment of $100 made
on March 31, 1996, in the common stock of RVM, the S&P 500, and an index of peer
companies (peer group) selected by RVM. The peer group consists of the following
companies: Dorsey Trailers, Inc., Featherlite Mfg., Inc., Miller Industries,
Inc./TN, Wabash National Corp., Supreme Industries, Inc., Easco, Inc.,
International Aluminum Corporation, and Tredegar Industries, Inc.
RVM believes that the large returns in 1998 and 1997 are due to J.C. Bradford &
Co. making a market in RVM's common stock beginning in the first quarter of 1997
and Herzeg Heine Geduld making a market beginning in the fourth quarter of 1998.
In addition, the Company retained investor relations consultants in January
1998. Prior to May 1996, RVM's common stock did not actively trade, but a market
maker quoted bid prices and traded shares infrequently. The decrease from 1998
to present may be attributed to lower profits.
RVM S&P 500
Industries, Composite Peer
Inc. Index Group
--------------- ----------------- ----------------
3/31/96 100.00 100.00 100.00
3/31/97 733.33 119.83 131.40
3/31/98 1,599.98 177.34 179.48
3/31/99 587.73 210.08 152.10
3/31/00 620.41 247.77 136.32
3/31/01 522.45 194.06 88.99
3/31/02 Nil 194.18 96.28
51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The only owner of record or holder, to the knowledge of RVM as of September 1,
2002, of more than 5% of RVM's Common Stock is set forth in the following table:
Title of Name and Address of Beneficial Amount and Nature of Percent of
Class Owner Beneficial Ownership Class
- ------------------------ ---------------------------------- ------------------------------- ----------------
Common Stock Jacob Pollock 1,680,205 (1)(2) 86.72%
753 W. Waterloo Road
Akron, Ohio 44314
Richard D. Pollock 120,270 (3)(2) 6.21
753 W. Waterloo Road
Akron, Ohio 44314
The following shows the ownership of RVM's Common Stock beneficially owned
directly or indirectly by each director, and by all directors and officers of
RVM as a group, as of September 1, 2002:
Title of Name and Address of Beneficial Amount and Nature of Percent of
Class Owner Beneficial Ownership Class
- ------------------------ ---------------------------------- ------------------------------- ----------------
Common Stock Jacob Pollock 1,680,205(1)(2) 86.72%
C. Stephen Clegg 250(4) 0.01
Richard D. Pollock 120,270(3)(2) 6.21
All directors and officers as a 1,761,990 90.94
group (5 persons)
(1) Jacob Pollock has sole voting and investment power with respect to
1,641,470 shares.
(2) 38,735 shares are held by the Pollock Family Foundation. Jacob Pollock,
Gertrude Pollock, Richard Pollock and Bruce Pollock, as trustees, equally
share voting and investment power with respect to the shares.
(3) 57,690 shares are held in an irrevocable trust for the benefit of Richard
Pollock's children. Richard Pollock is a co-trustee, sharing voting and
investment power with respect to these shares. 19,230 shares listed for
Richard Pollock are owned by his spouse; Mr. Pollock disclaims beneficial
ownership of these shares. The remaining 4,615 shares are owned directly
by Mr. Pollock.
(4) C. Stephen Clegg has sole voting and investment power with respect to 250
shares.
No preferred stock is currently outstanding.
52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases office and manufacturing space from a corporation in which
Richard Pollock and Bruce Pollock are shareholders. The five-year lease was
extended one year to December 31, 2002, at a monthly base rent of $6,500 with
annual increases determined by the change in the Consumer Price Index, plus the
Company's share of utilities, real estate taxes, insurance, and property
maintenance. The Company paid approximately $129,000 $128,539, and $129,000 in
2002, 2001, and 2000 respectively. Richard Pollock and Bruce Pollock are sons of
Jacob Pollock.
Since September 1, 2000 the Company has leased office space from 753 W. Waterloo
Rd. Limited Partnership, of which Jacob Pollock and his wife are members. The
lease is for three years expiring August 31, 2003 at a monthly base rent of
$5,500 plus the Company's share of utilities, real estate taxes, insurance and
property maintenance. The Company paid $84,000, $82,446, and $83,882 in 2002,
2001, and 2000, respectively.
The Company purchased aluminum materials from The Aluminum Warehouse, Inc.,
owned by Richard D. Pollock Living Trust U/A/D 8/2/94 and Richard D. Pollock
Irrevocable Trust U/A/D 1/4/94, totaling $300,000, $103,076, and $117,906, in
2002 2001, and 2000 respectively. The Company sold aluminum extrusions to The
Aluminum Warehouse, Inc. totaling $ 0, 220,880, and $536,529, in 2002, 2001, and
2000 respectively. $0, $20,836, and$147,826, was receivable at March 31, 2002,
2001, and 2000 respectively.
The Company hired temporary personnel from Flex-Team Incorporated, wholly owned
by the Jacob Pollock Irrevocable Trust. Amounts paid by the Company totaled
$141,420, $88,570 and $378,090, in 2002, 2001, and 2000, respectively.
See Notes 4 and 13 to the consolidated financial statements regarding
acquisitions from and notes payable to related parties. Mr. Pollock as described
in note 13 forgave interest and principle on related party debt. See Notes 7 and
8 to the consolidated financial statements regarding guarantees of certain debt
of the Company by related parties.
Management believes that the terms of the above transactions are comparable to
those that would have been obtainable from unaffiliated sources.
ITEM 14 CONTROLS AND PROCEDURES
Within the ninety-day period preceding the filing of this amended quarterly
report, management, including the Chief Executive Officer/Chief Financial
Officer of the Company, conducted an evaluation of the effectiveness of
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based
on that evaluation, the Chief Executive Officer/Chief Financial officer
concluded that the disclosure controls and procedures are effective in ensuring
that all material information required to be filed in this amended quarterly
report has been made known to him in a timely fashion. There have been no
significant changes in internal controls, or in factors that could significantly
affect internal controls, subsequent to the date the Chief Executive
Officer/Chief Financial Officer completed his evaluation.
53
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report: Pages
-----
(1) Financial Statements:
Report of Independent Auditors 18
Consolidated Balance Sheets, March 31, 2002 and 2001 19-20
Consolidated Statements of Operations for the years ended
March 31, 2002, 2001 and 2000 21
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 2002, 2001, and 2000 22
Consolidated Statements of Cash Flows for the years ended
March 31, 2002, 2001, and 2000 23
Notes to Consolidated Financial Statements 24-44
(2) Financial Statement Schedule:
II--Valuation and Qualifying Accounts
for the years ended March 31, 2002, 2001,and 2000 45
All other schedules are omitted because they are not
applicable or the required information is presented in the
financial statements or the notes thereto.
(3) Exhibits required by Item 601 of Regulation S-K:
Exhibit No. Item
----------- ----
2 (i) Agreement and Plan of Reorganization among Ravens Metal
Products, Inc., RVM Industries, Inc. and Ravens, Inc. was
filed as Exhibit 2 to Form 8-B filed March 31, 1997, and
is incorporated herein by reference.
2 (ii) Stock Purchase Agreement for common stock of Albex
Aluminum, Inc. and Signs and Blanks, Inc. was filed as
Exhibit 2.1 to Form 8-K filed on March 31, 1997, and is
incorporated herein by reference.
2 (iii) March 30, 2000 Amendment to Stock Purchase Agreement for
common stock of Albex Aluminum, Inc. and Signs and
Blanks, Inc. listed as Exhibit 2(ii) above was filed on
June 19, 2000 as Exhibit 2(iii) to Form 10K for the
fiscal year ended March 31, 2000.
54
Exhibit No. Item
- ----------- ----
3(i) Certificate of Incorporation of RVM was filed as Exhibit 3.1
to Form 8-B filed March 31, 1997, and is incorporated herein
by reference.
3(ii) RVM's By-laws were filed as Exhibit 3.2 to Form 8-B filed
March 31, 1997, and are incorporated herein by reference.
10(i) Management Agreement dated April 1, 1994, between J. Pollock
& Company and Registrant was filed as Exhibit 10(vii) to
Quarterly Report on Form 10-Q for the quarter ended December
31, 1994, and is incorporated herein by reference.
10(ii) Loan Agreement dated as of December 1, 1994, between the
registrant and City of Kent, Ohio was filed as Exhibit 10(a)
on Form 8-K dated December 12, 1994, and is incorporated
herein by reference.
10(iii) Promissory Note dated December 13, 1994, from the registrant
to the City of Kent, Ohio was filed as Exhibit 10(b) on Form
8-K dated December 12, 1994, and is incorporated herein by
reference.
10(iv) Reimbursement Agreement dated June 26, 1995, between the
registrant and FirstMerit Bank, N.A. (fka First National Bank
of Ohio) was filed as Exhibit 10(v) to Registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995,
and is incorporated herein by reference.
10(v) Guaranty Agreement dated as of July 1, 1995, and executed by
the registrant on August 14, 1995, among Albex Aluminum,
Inc., J. Pollock & Company, Ravens Metal Products, Inc.,
Signs And Blanks, Inc., Jacob Pollock, Gertrude Pollock,
Richard D. Pollock, The Provident Bank, as trustee, and The
Director of Development of the State of Ohio was filed as
Exhibit 99(b) on Form 8-K dated August 21, 1995, and is
incorporated herein by reference.
10(vi) Loan Agreement and Promissory Note dated September 30, 1997,
between the registrant and FirstMerit Bank, N.A. was filed as
Exhibit 10(i) on Form 10-Q for the quarter ended September
30, 1997, and is incorporated herein by reference.
10(vii) Business Loan Agreement and Promissory Note dated September
30, 1997, between the registrant and FirstMerit Bank, N.A.
was filed as Exhibit 10(ii) on Form 10-Q for the quarter
ended September 30, 1997, and is incorporated herein by
reference.
10(viii) Commercial Guaranty dated September 30, 1997, between Jacob
Pollock and FirstMerit Bank, N.A. was filed as Exhibit
10(iii) on Form 10-Q for the quarter ended September 30,
1997, and is incorporated herein by reference.
55
Exhibit No. Item
- ----------- ----
10(ix) Promissory Note (as amended and restated October 1, 1998)
between Albex Aluminum, Inc. & Jacob Pollock was filed as
Exhibit 10(i) on Form 10-Q for the quarter ended December 31,
1998, and is incorporated herein by reference.
10(x) Promissory Note (as amended and restated March 31, 1997)
between Signs and Blanks, Inc. & J. Pollock & Company was
filed as Exhibit 10(ii) on form 10-Q for the quarter ended
December 31, 1998, and is incorporated herein by reference.
10(xi) Loan Agreement and Promissory Note dated September 30, 1998,
between the Registrant and FirstMerit Bank, N.A.
10(xii) Promissory Note between RVM Industries, Inc. and FirstMerit
Bank, N.A. dated April 1, 1999 was filed as Exhibit 10(i) on
Form 10Q for quarter ended June 30, 1999, and is incorporated
herein by reference.
10(xiii) Promissory Note between RVM Industries, Inc. and FirstMerit
Bank, N.A. dated September 30, 1999 was filed as Exhibit
10(ii) on Form 10Q for quarter ended September 30, 1999 and
is incorporated herein by reference.
10(xiv) Amendment to Loan Agreement dated September 30, 1999 between
RVM Industries, Inc. and FirstMerit Bank, N.A. for the Loan
Agreement dated September 30, 1997 was filed as Exhibit
10(ii) on Form 10Q for quarter ended September 30, 1999, and
is incorporated herein by reference.
10(xv) Amendment to Business Loan Agreement dated September 30, 1999
between RVM Industries, Inc. and FirstMerit Bank, N.A. for
the Business Loan Agreement dated September 30, 1997 was
filed as Exhibit 10(ii) on Form 10Q for quarter ended
September 30, 1999, and is incorporated herein by reference.
10(xvi) Promissory Note between Albex Aluminum and Jacob Pollock,
trustee as of March 31, 2000.
21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
99 Certification pursuant to 18 U.S.C. Section 1350 of Jacob
Pollock, Chief Executive Officer/ Chief Financial Officer of
the Registrant
56
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The Registrant's executive compensation plans and arrangements required
to be filed as exhibits are listed under Exhibit 10 above.
(b) Reports on Form 8-K:
A Form 8-K was filed on August 10, 2001 describing the discontinuation of
the operations of Albex.
A Form 8-K was filed on November 21, 2001 announcing the sale of Ravens
Metal Products, Inc. to Fontaine Trailer Co.
A Form 8-K was filed on December 20, 2001 describing the resignation of
Ernst & Young LLP as auditors.
A Form 8-K was filed on February 23, 2002 describing RVM's ceasing
operations
A Form 8- K was filed on July 15, 2002 describing a change in auditors.
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date January 9, 2003 RVM INDUSTRIES, INC.
----------------------------
By: /s/ Jacob Pollock
-----------------------------------
Jacob Pollock, Chief
Executive Officer/Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
Date January 9, 2003 /s/ Jacob Pollock
------------------------ ----------------------------------------
Jacob Pollock, Director, Chief Executive
Officer/Chief Financial Officer,
(Principal Executive Officer, Principal
Financial Officer and Principal
Accounting Officer)
Date January 9, 2003 /s/ C. Stephen Clegg
------------------------ ----------------------------------------
C. Stephen Clegg, Director
Date January 9, 2003 /s/ Richard D. Pollock
------------------------ ----------------------------------------
Richard D. Pollock, Director
58
CERTIFICATIONS PURSUANT TO SECTION 302 the Sarbanes-Oxley Act of 2002
I, Jacob Pollock, Chief Executive Officer/Chief Financial Officer of the
registrant, hereby certify that:
(1) I have reviewed this amended annual report of the registrant;
(2) Based on my knowledge, this amended annual report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this amended
annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this amended annual report,
fairly present in all material respects the financial condition,
results of operations and cash flows of the issuer as of, and for,
the periods presented in this amended annual report;
(4) I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and I have:
(i) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
me by others within those entities, particularly during the
period in which this amended annual report was being
prepared;
(ii) Evaluated the effectiveness of the issuer's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this amended annual report
("Evaluation Date"); and
(iii) Presented in this amended annual report my conclusions
about the effectiveness of the disclosure controls and
procedures based on my evaluation as of the Evaluation
Date;
(5) I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of the board of
directors (or persons fulfilling the equivalent function):
(i) All significant deficiencies in the design or operation of
internal controls which could adversely affect the issuer's
ability to record, process, summarize and report financial
date and have identified for the issuer's auditors any
material weaknesses in internal controls; and
(ii) Any fraud, whether or not material, that involves
management or other employees who have a significant role
in the issuer's internal controls; and
(6) I have indicated in the report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of my most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
RVM INDUSTRIES, INC.
By: /s/ Jacob Pollock
------------------------------------------
Jacob Pollock, Chief Executive Officer/
Chief Financial Officer
Date: January 9, 2003
59