<PAGE>
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 September 30, 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 registrant 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 Ave.
Hibbing, MN 55746
(Address of principal executive offices) (Zip Code)
(218) 263-8831
(Registrant's telephone number, including area code)
Not applicable
(Former, name, former address and former fiscal year,
if changes since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
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 October 31, 2000.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Industrial Rubber Products, Inc.
Condensed Balance Sheets
September 30, 2000 and December 31, 1999
<CAPTION>
September 30 December 31
2000 1999
Unaudited
------------ ----------
Assets
<S> <C> <C>
Current Assets
Cash and Cash equivalents ................. $ 84,908 $ 563,845
Trade receivables, net of allowances....... 2,954,016 2,159,582
Inventories ............................... 1,422,283 1,628,459
Prepaid expenses .......................... 24,672 115,531
Deferred taxes ............................ 337,000 337,000
------------ ------------
Total current assets ...................... 4,822,879 4,804,417
Other Assets
Cash value of life insurance ............. 193,122 180,524
Goodwill ................................. 1,081,952 1,081,951
Accumulated Amortization ................. (122,529) (68,431)
Prepaid expenses ......................... 21,818 11,206
------------ ------------
Total other assets ........................ 1,174,363 1,205,250
Deferred Taxes ............................ 945,235 979,000
Property Plant and Equipment
Land ...................................... 122,112 533,847
Buildings ................................. 946,780 2,057,287
Automotive equipment ...................... 634,896 621,296
Machinery and equipment ................... 6,569,769 6,147,583
------------ ------------
8,273,557 9,360,013
Less Accumulated depreciation ............... 2,442,255 1,884,460
------------ ------------
Net Property Plant and Equipment ............ 5,831,302 7,475,553
------------ ------------
$ 12,773,779 $ 14,464,220
============ ============
Liabilities and Stockholder's Equity
Current Liabilities
Bank note payable ......................... $ 5,907,248 $ 6,500,000
Current maturities of
long-term debt ..................... 22,252 24,804
Accounts payable .......................... 655,759 1,344,478
Accrued expenses .......................... 891,406 1,212,576
Income taxes payable ...................... 0 91,000
------------ ------------
Total current liabilities .......... 7,476,665 9,172,858
------------ ------------
Long-term Debt, less current
maturities ................................ 251,939 291,202
------------ ------------
Stockholder's Equity
Common stock, $.001 par value;
authorized 25,000,000 shares;
issued 4,144,000 shares in 1999; and
4,187,205 in 2000......................... 4,187 4,144
Additional paid-in capital ................ 5,638,862 5,605,832
Retained earnings ......................... (601,859) (617,602)
Accumulated other comprehensive income .... 3,985 7,786
------------ ------------
Total Stockholder's Equity .................. 5,045,175 5,000,160
------------ ------------
$ 12,773,779 $ 14,464,220
============ ============
</TABLE>
See notes to the condensed financial statements.
<TABLE>
Industrial Rubber Products, Inc.
Condensed Statements of Income
(Unaudited)
<CAPTION>
Three months ended Nine months ended
September 30, September 30
--------------------- ------------------
2000 1999 2000 1999
---- ---- ----- ----
<S> <C> <C> <C> <C>
Net Sales $3,839,931 $ 3,639,396 $13,739,410 $ 9,593,830
Cost of Sales 3,213,262 3,067,080 10,741,736 7,648,873
----------- ----------- ----------- -----------
Gross profit 626,669 572,316 2,997,674 1,944,957
Selling, general and
administrative
expenses 866,524 930,406 2,445,202 2,460,185
Irathane consolidation
expense 4,317 0 369,858 0
Arizona closure
expense 0 0 (96,717) 0
----------- ----------- ----------- -----------
Operating income
(loss) (244,172) (358,090) 279,331 (515,228)
----------- ----------- ----------- -----------
Nonoperating Income
Expense
Interest income 1,548 7,143 4,868 31,920
Interest expense (164,179) (151,760) (493,537) (310,809)
Gain/Loss on sale
of assets 0 0 235,576 (234)
----------- ----------- ---------- -----------
(162,631) (144,617) (253,093) (279,123)
----------- ----------- ----------- -----------
Income (Loss) before
taxes (406,803) (502,707) 26,238 (794,351)
Income tax expense
(credit) (162,721) (202,307) 10,495 (317,741)
----------- ----------- ----------- -----------
Net Income (Loss) (244,082) (300,400) 15,743 (476,610)
----------- ----------- ----------- -----------
Basic and diluted
earnings (loss)
per share (Note 3) (.06) (.07) .004 (.11)
=========== =========== =========== ===========
Weighted average
shares outstanding 4,187,205 4,158,065 4,179,636 4,175,223
</TABLE>
See notes to the condensed financial statements.
<TABLE>
Industrial Rubber Products, Inc.
Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine months ended
September 30,
-------------------------
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss) ...................... $ 15,743 $ (476,610)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation ....................... 586,385 600,962
Amortization ....................... 54,097 48,502
Gain on sale of property ........... (235,576) 0
Deferred Taxes ..................... 36,593 (314,192)
Changes in working capital components
net of effect from purchase of business
(Increase)Decrease in:
Receivables ...................... (794,434) (302,559)
Inventories ...................... 206,176 552,009
Prepaid expenses ................. 80,247 (540,339)
Increase(Decrease) in:
Accounts payable and accrued
expenses ....................... (1,067,816) (42,710)
----------- -----------
Net cash provided by (used in)
operating activities .................... (1,118,585) (474,937)
----------- -----------
Cash Flows from Investing Activities
Purchase of property & equipment ....... (438,544) (327,426)
(Increase) decrease in cash value
of life insurance .................... (12,598) (16,392)
Proceeds from sale of property ......... 1,731,986 0
Proceeds from maturity of
marketable debt securities ........... 0 1,642,784
Purchase of businesses ................. 0 (9,282,735)
Other investing activities ............. 0 23,884
----------- -----------
Net Cash provided by (used in)
investing activities .................... 1,280,844 (7,959,885)
----------- -----------
Cash Flows From Financing Activities
Net proceeds (repayments) on short-
term borrowings ....................... (592,752) 7,000,000
Principal payments on long-term
borrowings ............................ (41,815) (212,004)
Disbursements for loan
origination fees ..................... 0 (35,000)
Disbursements for common
stock reacquired ..................... 0 (78,883)
----------- -----------
Net cash provided by (used in)
financing activities .................... (634,567) 6,674,113
(Increase) Decrease in Foreign
Currency Adjustment .................. (6,629) 8,348
Net increase (decrease) in cash and
cash equivalents ....................... (478,937) (1,752,361)
Cash and cash equivalents
Beginning .............................. 563,845 2,715,966
----------- -----------
Ending ................................. $ 84,908 $ 963,605
=========== ===========
Supplemental Disclosures of Cash Flow
Information
Cash payments for interest ............. $ 491,482 $ 264,169
=========== ===========
Cash payments for income taxes ......... $ 64,903 $ 0
=========== ===========
</TABLE>
See notes to the condensed financial statements.
<TABLE>
<CAPTION>
Supplemental Schedule of Noncash Investing and Financing Activities
<S> <C> <C>
Acquisition of business
Cash purchase price $ 9,282,735
Accounts Receivable 1,113,705
Other receivables 0
Inventories 1,500,511
Other current assets 29,226
Property and Equipment 6,661,275
Excess of cost over net assets
of Acquired companies 666,983
Accounts payable and accrued
items assumed (688,965)
--------- --------------
$ 0 $ 9,282,735
Issuance of 43,250 shares of common
stock and reduction of accrued
stock bonus $ 33,073 0
--------- --------------
$ 33,073 $ 9,282,735
</TABLE>
Industrial Rubber Products, Inc.
Notes to Consolidated Financial Statements
September 30, 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 September 30, 2000 and
September 30, 1999 (b) the results of operations for the nine months ended
September 30, 2000 and September 30, 1999 (c) the financial position at
September 30, 2000 and (d) the cash flows for the nine month periods ended
September 30, 2000 and September 30, 1999. Operating results for the three month
period ended September 30, 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.
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes some of the staff's interpretations of the
application of generally accepted accounting principles to revenue recognition.
The Company, which is required to adopt SAB No. 101 in the fourth quarter of
2000, has adopted it in the quarter ending September 30, 2000. Management
believes the adoption of SAB No. 101 will not have a significant affect on its
financial statements. As a result of the adoption of SAB No. 101, the Company is
reporting net revenue from its Nordberg/Cleveland Cliffs alliance for crusher
castings as commissions. For the quarter ending September 30, 2000, the Company
had commissions from the Nordberg/Cleveland Cliffs alliance of approximately
$20,000, resulting from the distribution of crusher castings with a sales value
of approximately $350,000. There were no transactions from this alliance prior
to the quarter ending September 30, 2000.
Note 2. Related Company Transactions. As of September 30, 2000 the Company
had receivables of $104,313 and payables of $1,716 in total with Nelson Roofing,
Inc. and K Building Components, Inc. ("KBC"), both companies owned solely by the
majority stockholder of the Company. The Company contracted with both Nelson
Roofing and KBC to assist in the consolidation and move of the Colorado Irathane
facility. Materials and services totaled $8,748 in the third quarter and
$172,284 for the nine-month period. 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 third quarter of 2000. Management fees for the nine-month period
ending September 30, 2000, amounted to $81,841. The Company rented 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 third quarter of
2000. Rent paid for the nine-month period ending September 30, 2000, amounted to
$25,380. The house was sold and the rental arrangement discontinued in
September, 2000.
Note 3. Earnings per share. Earnings per share are 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 September 30, 2000.
Note 4. Total comprehensive income. For the nine-month period ended
September 30, 2000, total comprehensive income was $11,942. For the quarter
ended September 30, 2000, the total comprehensive loss was $241,854. The
difference between total comprehensive income and net income was due to foreign
currency transaction adjustments net of tax.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Net Sales. Net sales for the third quarter of 2000 of $3,839,931 compares
with $3,639,396 in the same quarter of 1999. The increase in sales compared with
1999 is primarily the result of Nordberg distribution sales, which were $420,011
for the third quarter of 2000. The Company began distribution of Nordberg
products in the fourth quarter of 1999.
Net sales for the nine-month period ending September 30, 2000, of
$13,739,410 compares with $9,593,830 in the same period of 1999, an increase in
net sales of 43%. The increase in sales is the result of the Nordberg
distribution addition, $1,878,551, and the Irathane acquisition on March 31,
1999, which accounted for approximately $2,450,000 first quarter sales in 2000.
The Company's order backlog on September 30, 2000, was approximately
$2,268,000.
Cost of Sales. Cost of sales as a percentage of net sales was 83.7% in the
third quarter of 2000 compared with 84.3% in the same quarter of 1999. This
slight improvement resulted despite the addition of the Nordberg distribution
sales, which carry a higher cost of sales than in-house manufactured products.
Cost of sales for the first nine months of 2000 was 78.2% of net sales and
compares with 79.7% for the same period in 1999. Again, the improvement resulted
despite the addition of Nordberg distributorship sales. Cost of sales excluding
Nordberg was 77.0% for the nine-month period in 2000.
Selling, General and Administrative Expenses. Normal selling, general and
administrative expenses decreased from $930,406 (25.6% of net sales) in the
third quarter of 1999 to $866,524 (22.6% of net sales) in the same quarter of
2000. The decrease was the result of Company efforts to reduce expenses at all
divisions and the corporate office. For the nine-month period ending September
30, 2000, normal selling, general and administrative expenses of $2,445,202
(17.8% of net sales) compared with expenses of $2,460,185 (25.6% of net sales)
during the same period in 1999. Again, the decrease was the result of Company
efforts to reduce expenses. Irathane consolidation expenses for the nine-month
period in 2000 were $369,858. These consolidation expenses were partially offset
by the reversal of Arizona closure expenses of $96,717 resulting from the
sublease of the Arizona facility.
Nonoperating Income and Expense. The major nonoperating expense, interest
expense, increased from $151,760 in the third quarter of 1999 to $164,179 in the
same quarter of 2000. The increase was the result of higher interest rates.
For the nine-month period ended September 30, interest expense increased
from $310,809 in 1999 to $493,537 in 2000. The increase was due to the timing of
the major bank note, the proceeds of which were received on March 30, 1999. The
Company recorded total gains from the sale of assets of $235,576 in 2000. The
sale of the Irathane Colorado facility accounted for $201,576 of the gain, with
several assets at TJ Products accounting for the remainder.
Net Income/(Loss) Before Tax. The net loss before tax for the quarter
ending September 30, 2000, was $406,803 and compares with a loss of $502,707 for
the same quarter in 1999. Net income before tax for the nine-month period ending
September 30, 2000, was $26,238 and compares to a loss of $794,351 in the same
period of 1999. The improvement was due to the increase in net sales discussed
above.
Income Taxes. During the quarter ended September 30, 2000, the Company
recorded an income tax credit of $162,721. This compares with a credit of
$202,307 in the same quarter of 1999. For the nine-month period ended September
30, 2000, the Company recorded an income tax provision of $10,495. During the
same period in 1999 the Company recorded a credit of $317,741. The Company does
not anticipate the payment of tax for 2000 income due to operating loss carry
forwards from previous years, except for the Irathane Elliott (Canadian)
division.
Cash Flows. The Company's cash flows from operating activities showed net
cash used of $1,118,585 for the first nine months of 2000. Working capital
component changes accounted for net cash usage of $1,575,827. Accounts
receivable increased by $794,434 and accounts payable and accrued expenses
decreased by $1,067,816. The unfavorable working capital changes were the result
of several unrelated events. The addition of the Nordberg distributorship in
late 1999 affected working capital by about $400,000. Accounts receivable
included $300,000 as of September 30, 2000, for a one-time project with extended
terms that has since been paid. The closure of the Arizona facility had a
working capital impact of about $150,000. Product shipments to the Company's
South American licensee, which include extended terms, have increased by about
$200,000. Most of the remainder is the result of the Company's improved
compliance with payment terms. These unfavorable working capital changes were
partially offset by net income of $656,225, excluding depreciation and
amortization.
The Company showed net cash provided by investing activities of $1,280,844
in the first nine months of 2000. The major item was $1,697,986 from the
proceeds of the Colorado property sale. This was partially offset by $438,544
for the purchase of property and equipment, which was primarily the capital
improvements made to the Hibbing Irathane plant for the consolidation.
The Company used $634,567 in financing activities for the first nine months
of 2000. Nearly all of this amount, $592,752, was used to reduce short-term bank
borrowings.
In total, the Company showed a net decrease in cash of $478,937 for the
first nine months of 2000. This reduced the Company's cash balance from $563,845
to $84,908.
Liquidity and Sources of Capital. During the first nine months of 2000 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. During the same period the Company
increased their borrowing under its revolving credit agreement by $1,059,141.
This was primarily used to finance working capital requirements and cash
requirements related to the Irathane facility consolidation.
During the first quarter the Company signed an extension of their financing
agreements with US Bank to June 30, 2000. During the second quarter the Company
signed another extension with the same bank until December 31, 2000. These
extensions were the result of improved performance by the Company in 2000. The
Company is continuing to work with US Bank and other financial institutions to
convert short-term borrowings into long-term debt. The Company believes that it
can fund proposed capital expenditures and operating requirements from
operations and bank credit lines.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
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.
None
<PAGE>
SIGNATURES
<PAGE>
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: November 7, 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>
Nine Months Ended
September 30,
----------------
2000
----------
<S> <C>
Net income Per Share - basic:
Weighted average shares outstanding
during the period 4,179,636
----------
Net Income (Loss) $ 15,743
----------
Net income (loss) per share - basic $ .004
==========
Net income per share - diluted: $ .004
==========
</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 September 30, 2000.
