QUARTERLY REPORT FOR INDUSTRIAL RUBBER PRODUCTS, INC.
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Period Ended March 31, 2000 or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period Ended
From to
----------------
Commission file number 333-46643
INDUSTRIAL RUBBER PRODUCTS, INC.
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1550505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3804 East 13th Street
Hibbing, MN 55746
(Address of principal executive offices) (Zip Code)
(218) 263-8831
(Issuer's telephone number, including area code)
Not applicable
(Former, name, former address and former fiscal year,
if changes since last report)
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes No
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $.001 Par Value - 4,187,205 shares as of April 30, 2000.
Transitional Small Business Disclosure Format (check one) Yes No x
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Industrial Rubber Products, Inc.
Condensed Balance Sheets
March 31, 2000 and December 31, 1999
<CAPTION>
March 31 December 31
2000 1999
--------- ----------
Assets
<S> <C> <C>
Current Assets
Cash and Cash equivalents $ 341,556 $ 563,845
Trade receivables net of allowances 3,292,618 2,159,582
Inventories 1,913,053 1,628,459
Prepaid expenses 102,103 115,531
Deferred Taxes 337,000 337,000
---------- ----------
Total Current Assets 5,986,330 4,804,417
Cash Value of Life Insurance 181,849 180,524
Goodwill 1,081,951 1,081,951
Accumulated Amortization (86,463) (68,431)
Prepaid expenses 11,206 11,206
----------- -----------
Total Other Assets 1,188,543 1,205,250
Deferred Taxes 865,323 979,000
----------- -----------
Property Plant Equipment
Land 123,696 533,847
Buildings 942,046 2,057,287
Automotive Equipment 621,255 621,296
Machinery & Equipment 6,223,379 6,147,583
----------- ----------
7,910,376 9,360,013
Less Accumulated Depreciation 2,051,648 1,884,460
---------- ----------
Total Property, Plant & Equipment 5,858,728 7,475,553
---------- ----------
Total Assets 13,898,924 14,464,220
---------- ----------
Liabilities and Stockholder's Equity
Current Liabilities
Bank note payable $5,155,201 $ 6,500,000
Current maturities of
long-term debt 23,388 24,804
Accounts payable 2,194,505 1,344,478
Accrued expenses 945,057 1,212,576
Income taxes payable 91,000 91,000
----------- -----------
Total Current Liabilities 8,409,151 9,172,858
----------- -----------
Long-term Debt, less current
Maturities 286,576 291,202
----------- -----------
Stockholder's Equity
Common stock, $.001 par value 4,187 4,144
Additional Paid In Capital 5,638,862 5,605,832
Retained Earnings (447,087) (617,602)
Accumulated other comprehensive
income 7,235 7,786
---------- ---------
Total Equity 5,203,197 5,000,160
---------- -----------
Total Liabilities and Equity $ 13,898,924 $14,464,220
=========== ===========
</TABLE>
<TABLE>
Industrial Rubber Products, Inc.
Condensed Statements of Income
(Unaudited)
<CAPTION>
Three months ended
March 31,
---------------------
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 5,054,304 $ 1,631,671
Cost of Sales 3,745,314 1,490,967
----------- -----------
Gross profit $ 1,308,990 $ 140,704
Selling, general and
administrative
expenses 838,819 530,542
Irathane moving expense 215,970 0
----------- -----------
Operating income(loss) $ 254,201 $ (389,838)
----------- -----------
Nonoperating Income(Expense)
Interest income 1,930 23,214
Interest expense(loss) (173,515) (10,370)
Gain/(loss) on sale of
assets 201,576 0
----------- -----------
29,991 12,484
----------- -----------
Income(loss)before
income taxes $ 284,192 $ (377,354)
----------- -----------
Income tax expense(credit) 113,677 (150,988)
----------- -----------
Net Income (Loss) 170,515 (226,366)
----------- -----------
Basic earnings(loss)
per share (Note 3) .04 (.05)
=========== ===========
Weighted average
shares outstanding 4,164,300 4,185,200
</TABLE>
<PAGE>
<TABLE>
Industrial Rubber Products, Inc.
Statements of Cash Flows
(Unaudited)
<CAPTION>
Three months ended
March 31,
-------------------------
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities
Net Income(Loss) $ 170,515 $ (226,366)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 195,778 167,101
Amortization 18,032 14,819
Gain on sale of property (201,576) 0
Deferred Taxes 113,677 (150,988)
Changes in working capital components
Net of effects from purchase of businesses
(Increase)Decrease in:
Receivables (1,133,036) 26,891
Inventories (284,594) 166,968
Prepaid expenses 13,428 (349,342)
Increase(Decrease) in:
Accounts payable and accrued
expenses 615,581 (9,465)
----------- ----------
Net cash provided by (used in)
operating activities (492,195) (360,382)
----------- ----------
Cash Flows from Investing Activities
Purchase of property & equipment (75,363) (229,531)
Increase in cash value of life insurance (1,325) (7,026)
Proceeds from sale of property 1,697,986 0
Proceeds from maturity of marketable
debt securities 0 1,642,784
Purchase of businesses 0 (9,951,265)
Other investing activities 0 (64,582)
----------- ----------
Net cash provided by (used in)
investing activities 1,621,298 (8,609,620)
----------- ----------
Cash Flows From Financing Activities
Net proceeds (repayments) on short-
term borrowings (1,344,799) 7,000,000
Principal payments on long-term
borrowings (6,042) (182,602)
Disbursements for loan origination fees 0 (35,000)
Disbursements for common stock reacquired 0 (5,562)
----------- ----------
Net cash provided by (used in)
financing activities (1,350,841) 6,776,836
----------- ----------
Increase (decrease) in Foreign Currency
Translation (551) 0
---------- ---------
Net increase (decrease) in cash and
cash equivalents (222,289) (2,193,166)
Cash and cash equivalents
Beginning 563,845 2,715,966
----------- ----------
Ending $ 341,556 $ 522,800
=========== ==========
Supplemental Disclosures of Cash Flow
Information
Cash payments for interest $ 165,850 $ 12,273
----------- ----------
Cash payments for income taxes $ 0 $ 0
=========== ==========
Supplemental Schedule of Noncash
Investing and Financing Activities
Acquisition of business:
Cash purchase price 9,951,265
Accounts receivable 1,298,000
Inventories 1,585,391
Other current assets 61,649
Property and equipment 6,899,475
Excess if cost over net assets
of acquired companies 414,750
Accounts payable assumed (308,000)
Issuance of 43,250 shares of common
stock and reduction of accrued
stock bonus 33,073
------------ -----------
33,073 9,951,265
============ ===========
</TABLE>
Industrial Rubber Products, Inc.
Notes to Condensed Financial Statements
March 31, 2000
(Unaudited)
Note 1. Basis of Presentation. The accompanying interim financial
statements presented have been prepared by Industrial Rubber Products, Inc. (the
"Company") without audit, and in the opinion of the management, reflect all
adjustments of a normal recurring nature necessary for a fair statement of (a)
the results of operations for the three months ended March 31, 2000 and March
31, 1999 (b) the financial position at March 31, 2000 and (c) the cash flows for
the three month periods ended March 31, 2000 and March 31, 1999. Operating
results for the three month period ended March 31, 2000, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. The balance sheet presented as of December 31, 1999 has been derived from
the financial statements that have been audited by the Company's independent
public accountants. The financial statements and notes are condensed as
permitted by Form 10-QSB and do not contain certain information included in the
annual financial statements and notes of the Company. The consolidated financial
statements and notes included herein should be read in conjunction with the
financial statements and notes included in the Company's Form 10-KSB filed March
29, 2000.
Note 2. Related Company Transactions. As of March 31, 2000 the Company had
receivables of $69,618 and payables of $72,270 with Nelson Roofing, Inc., a
company owned by the majority stockholder of the Company. The Company provides
management and administrative services to Nelson Roofing, Inc. and receives a
management fee for such services. Management fees invoiced to Nelson Roofing,
Inc. amounted to $35,427 in the first quarter of 2000.
The Company rents a house in Utah owned by the majority stockholder on a
month to month basis. Total rent paid to the majority stockholder amounted to
$8,460 in the first quarter of 2000.
Note 3. Earnings per share. Earnings per share are computed based upon the
weighted average number of shares outstanding during the period.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Net Sales. The Company's net sales for the first quarter of 2000 of
$5,054,304 showed an increase of $3,422,633 from the sales in the same period in
1999 of $1,631,671. Irathane Systems which was acquired on March 31,1999,
accounts for approximately $2,449,000 of the increase. The Company recorded
sales of $954,000 during the first quarter of 2000 for Nordberg Sales Corp. The
Company became the distributor for Nordberg in October of 1999 and therefore had
no sales during the first quarter of 1999. First quarter sales for the remaining
product lines showed a slight increase in 2000 when compared with 1999.
The Company's order backlog on March 31, 2000, was approximately
$3,129,040 compared to $1,411,000 on March 31, 1999.
Cost of Sales. Cost of sales as a percentage of net sales was 74.1% in the
first quarter of 2000 compared with 91.4% in same quarter of 1999. The
improvement is the result of increased sales volume and improved control of
direct material and labor, as well as other manufacturing expenses.
Selling, General and Administrative Expenses. Selling, general, and
administrative expenses of $1,054,789 in the first quarter of 2000 increased
from $530,542 in the same quarter of 1999. Selling, general and administrative
expenses for Irathane Systems and the Nordberg distributorship amounted to
$550,000 in the first quarter of 2000 and were not present in the first quarter
of 1999. Included in the $550,000 total was $215,970 related to the move and
consolidation of Irathane's U.S. manufacturing facilities.
<PAGE>
Nonoperating Income and Expense. Interest expense for the first quarter of
2000 was $173,515 and represents an increase from $10,730 in the first quarter
of 1999. This increase was the result of bank debt that was initiated on March
31, 1999, and had an outstanding balance of $6.5 million during the first
quarter of 2000.
On March 31, 2000, the Company sold the land and buildings at its Irathane
Colorado facility and recorded a gain on the sale of $201,576. The net proceeds
of the sale, $1,651,893, were used to pay down bank debt
Net Income Before Taxes. Net income before tax for the period ended March
31, 2000, was $284,192, compared to a loss of $377,354 for the same period of
1999. The improvement was the result of increased sales and reduced cost of
sales.
Income Taxes. During the first quarter of 2000, the Company recorded an
income tax expense of $113,677, resulting in net income of $170,515. The Company
does not anticipate the use of cash for the payment of income taxes due to its
utilization of net operating loss carryforwards.
Cash Flows. The Company's cash flows from operating activities showed cash
used of $492,195, in the first quarter of 2000 compared with cash used of
$360,382 in the same period of 1999. The first quarter of 2000 included
unfavorable working capital changes of $788,621. These were partially offset by
net income of $170,515 and the utilization of deferred tax of $113,677. The
Company's cash flows provided by investing activities were $1,621,298 in the
first quarter of 2000. The major item was $1,697,986 from the proceeds of the
Colorado property sale. During the same period of 1999, $8,609,620 was used in
investing activities, including $9,951,265 for the purchase of TJ Products and
Irathane Systems Inc. Net cash used in financing activities was $1,350,841 in
the first quarter of 2000. This included the repayment of short-term bank
borrowings of $1,651,893 from the sale of the Irathane Colorado facility, offset
by new borrowings of $307,094. During the same period of 1999, financing
activities provided $6,776,836, including $7,000,000 of short-term bank
borrowings. The net cash decrease for the first quarter ending March 31, 2000,
was $222,289.
Liquidity and Sources of Capital. During the quarter, the Company used the
proceeds of the Colorado property sale to reduce the balance of the bank note
from $6,500,000 to $4,848,107. The Company also used their revolving credit
agreement to borrow $307,094 to finance changes in working capital accounts. The
Company believes that the first quarter financial performance and reduction of
borrowings will lead to a further extension of its financing agreements with US
Bank, beyond the current June 30, 2000 date. The Company also believes that it
can fund proposed capital expenditures and operating requirements from
operations and renewed bank credit lines. Proposed capital expenditures for the
year ended December 31, 2000, are expected to total approximately $500,000,
which is similar to the past two years.
Year 2000. The Company did not experience any significant Year 2000
problems. In the ordinary course of business over the last two years, the
Company has replaced several personal computers and software. These replacements
required minimal expenditures. The Company established formal Year 2000 plans
during the past several years to minimize the potential impact from in-house
operating systems and from suppliers. These efforts, which required minimal
expenditures, were successful in that the Company experienced no interruptions
to its internal systems or with its suppliers. No critical projects were
deferred because of Year 2000 issues.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 11 Statement Re: Computation of Earnings per Share.
Exhibit 27 Financial Data Schedule
(b) Reports on Forms 8-K.
A report on Form 8-K was filed on April 14, 2000 regarding sale of the
Company's land and buildings in Colorado Springs, Colorado.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDUSTRIAL RUBBER PRODUCTS, INC.
(Registrant)
Date: May 10, 2000 /s/ John M. Kokotovich
---------------------------------
John M. Kokotovich
Chief Financial Officer
Industrial Rubber Products, Inc.
Exhibit 11 - Statement Re Computation of Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------
2000
----------
<S> <C>
Primary and full diluted:
Weighted average shares outstanding
during the period 4,164,300
----------
Net Income $ 170,515
----------
Net income per share - basic $ .04
==========
Net income per share - diluted: n/a
</TABLE>
Net income per share is computed based upon the weighted average number of
shares outstanding during the period. The Stock Options and Warrants discussed
in the Company's Schedule 14A filed April 7, 2000 were not dilutive for the
period ending March 31, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Industrial Rubber Products, Inc.'s Form 10-QSB for the quarterly period ended
March 31, 2000 and is qualified in its entirety by reference to such
consolidated statement.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 341,556
<SECURITIES> 0
<RECEIVABLES> 3,677,579
<ALLOWANCES> 384,961
<INVENTORY> 1,913,053
<CURRENT-ASSETS> 5,986,330
<PP&E> 7,910,376
<DEPRECIATION> 2,051,648
<TOTAL-ASSETS> 13,898,924
<CURRENT-LIABILITIES> 8,409,151
<BONDS> 286,576
0
0
<COMMON> 4,187
<OTHER-SE> 5,199,010
<TOTAL-LIABILITY-AND-EQUITY> 13,898,924
<SALES> 5,054,304
<TOTAL-REVENUES> 5,054,304
<CGS> 3,745,314
<TOTAL-COSTS> 4,800,103
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,961
<INTEREST-EXPENSE> 173,515
<INCOME-PRETAX> 284,192
<INCOME-TAX> 113,677
<INCOME-CONTINUING> 170,515
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,515
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
