<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 June 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 July 31, 2000.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Industrial Rubber Products, Inc.
Condensed Balance Sheets
June 30, 2000 and December 31, 1999
<CAPTION>
June 30 December 31
2000 1999
Unaudited
------------ ----------
Assets
<S> <C> <C>
Current Assets
Cash and Cash equivalents ................. $ 333,468 $ 563,845
Trade receivables, net of allowances....... 3,232,618 2,159,582
Inventories ............................... 1,456,423 1,628,459
Prepaid expenses .......................... 95,374 115,531
Deferred taxes ............................ 337,000 337,000
------------ ------------
Total current assets ...................... 5,454,883 4,804,417
Other Assets
Cash value of life insurance ............. 183,840 180,524
Goodwill ................................. 1,081,951 1,081,951
Accumulated Amortization ................. (104,496) (68,431)
Prepaid expenses ......................... 21,818 11,206
------------ ------------
Total other assets ........................ 1,183,113 1,205,250
Deferred Taxes ............................ 782,514 979,000
Property Plant and Equipment
Land ...................................... 121,554 533,847
Buildings ................................. 938,625 2,057,287
Automotive equipment ...................... 634,743 621,296
Machinery and equipment ................... 6,542,412 6,147,583
------------ ------------
8,237,334 9,360,013
Less Accumulated depreciation ............... 2,241,106 1,884,460
------------ ------------
Net Property Plant and Equipment ............ 5,996,228 7,475,553
------------ ------------
$ 13,416,738 $ 14,464,220
============ ============
Liabilities and Stockholder's Equity
Current Liabilities
Bank note payable ......................... $ 5,791,014 $ 6,500,000
Current maturities of
long-term debt ..................... 23,905 24,804
Accounts payable .......................... 1,069,772 1,344,478
Accrued expenses .......................... 965,765 1,212,576
Income taxes payable ...................... 0 91,000
------------ ------------
Total current liabilities .......... 7,850,456 9,172,858
------------ ------------
Long-term Debt, less current
maturities ................................ 279,253 291,202
------------ ------------
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 ......................... (357,777) (617,602)
Accumulated other comprehensive income .... 1,757 7,786
------------ ------------
Total Stockholder's Equity .................. 5,287,029 5,000,160
------------ ------------
$ 13,416,738 $ 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 Six months ended
June 30, June 30,
--------------------- ------------------
2000 1999 2000 1999
---- ---- ----- ----
<S> <C> <C> <C> <C>
Net Sales $4,845,175 $ 4,322,763 $ 9,899,479 $ 5,954,434
Cost of Sales 3,783,160 3,090,826 7,528,474 4,581,793
----------- ----------- ----------- -----------
Gross profit 1,062,015 1,231,937 2,371,005 1,372,641
Selling, general and
administrative
expenses 739,859 999,237 1,578,678 1,529,779
Irathane moving
expense 149,571 0 365,541 0
Arizona closure
expense (96,717) 0 (96,717) 0
----------- ----------- ----------- -----------
Operating income
(loss) 269,302 232,700 523,503 (157,138)
----------- ----------- ----------- -----------
Nonoperating Income
Expense
Interest income 1,391 1,563 3,321 24,777
Interest expense (155,843) (148,319) (329,358) (159,049)
Gain/Loss on sale
of assets 34,000 (234) 235,576 (234)
----------- ----------- ---------- -----------
(120,452) (146,990) (90,461) (134,506)
----------- ----------- ----------- -----------
Income (Loss) before
taxes 148,850 85,710 433,042 (291,644)
Income tax expense
(credit) 59,540 35,554 173,217 (115,434)
----------- ----------- ----------- -----------
Net Income (Loss) 89,310 50,156 259,825 (176,210)
----------- ----------- ----------- -----------
Basic and diluted
earnings (loss)
per share (Note 3) .02 .01 .06 (.04)
=========== =========== =========== ===========
Weighted average
shares outstanding 4,187,205 4,183,401 4,175,752 4,183,495
</TABLE>
See notes to the condensed financial statements.
<TABLE>
Industrial Rubber Products, Inc.
Statements of Cash Flows
(Unaudited)
<CAPTION>
Six months ended
June 30,
-------------------------
2000 1999
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss) ...................... $ 259,825 $ (176,210)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation ....................... 385,236 362,734
Amortization ....................... 36,065 31,601
Gain on sale of property ........... (235,576) 0
Deferred Taxes ..................... 199,314 (114,729)
Changes in working capital components
net of effect from purchase of business
(Increase)Decrease in:
Receivables ...................... (1,073,036) (227,773)
Inventories ...................... 172,036 307,161
Prepaid expenses ................. 9,545 (579,713)
Increase(Decrease) in:
Accounts payable and accrued
expenses ....................... (579,444) 77,212
----------- -----------
Net cash provided by (used in)
operating activities .................... (826,035) (319,717)
----------- -----------
Cash Flows from Investing Activities
Purchase of property & equipment ....... (402,321) (252,294)
(Increase) decrease in cash value
of life insurance .................... (3,316) (14,728)
Proceeds from sale of property ......... 1,731,986 0
Proceeds from maturity of
marketable debt securities ........... 0 1,642,784
Purchase of businesses ................. 0 (9,962,652)
Other investing activities ............. 0 (74,116)
----------- -----------
Net Cash provided by (used in)
investing activities .................... 1,326,349 (8,661,006)
----------- -----------
Cash Flows From Financing Activities
Net proceeds (repayments) on short-
term borrowings ....................... (708,986) 7,220,000
Principal payments on long-term
borrowings ............................ (12,848) (206,093)
Disbursements for loan
origination fees ..................... 0 (35,000)
Disbursements for common
stock reacquired ..................... 0 (26,195)
----------- -----------
Net cash provided by (used in)
financing activities .................... (721,834) 6,952,712
(Increase) Decrease in Foreign
Currency Adjustment .................. (8,857) 5,384
Net increase (decrease) in cash and
cash equivalents ....................... (230,377) (2,022,627)
Cash and cash equivalents
Beginning .............................. 563,845 2,715,966
----------- -----------
Ending ................................. $ 333,468 $ 693,339
=========== ===========
Supplemental Disclosures of Cash Flow
Information
Cash payments for interest ............. $ 327,283 $ 114,023
=========== ===========
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 $ 9,962,652
Accounts Receivable 1,113,705
Other receivables 811,490
Inventories 1,500,511
Other current assets 29,226
Property and Equipment 6,899,475
Excess of cost over net assets
of Acquired companies 426,137
Accounts payable and accrued
items assumed (817,892)
--------- --------------
$ 0 $ 9,962,652
Issuance of 43,250 shares of common
stock and reduction of accrued
stock bonus $ 33,073 0
--------- --------------
$ 33,073 $ 9,962,652
</TABLE>
Industrial Rubber Products, Inc.
Notes to Condensed Financial Statements
June 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 June 30, 2000 and June 30,
1999 (b) the results of operations for the six months ended June 30, 2000 and
June 30, 1999 (c) the financial position at June 30, 2000 and (d) the cash flows
for the six month periods ended June 30, 2000 and June 30, 1999. Operating
results for the three month period ended June 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.
Note 2. Related Company Transactions. As of June 30, 2000 the Company had
receivables of $93,236 and payables of $67,621 in total with Nelson Roofing,
Inc., and K Building Components, Inc. ("KBC"), both companies owned 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 $140,858 in the second quarter and
$163,536 for the six 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
$10,987 in the second quarter of 2000. Management fees for the six-month period
ending June 30, 2000, amounted to $46,414.
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 second quarter of 2000. Rent paid for the six-month period ending
June 30, 2000, amounted to $16,920.
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 June 30, 2000
Note 4. Total comprehensive income. For the six-month period ended June 30,
2000, total comprehensive income was $253,796. For the quarter ended June 30,
2000 total comprehensive income was $83,832. 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.
<PAGE>
Net Sales. Net sales for the second quarter of 2000 of $4,845,175 compares
with $4,322,763 in the same quarter of 1999. The increase in sales compared with
1999 is primarily the result of Nordberg distribution sales of $504,506. The
Company began distribution of Nordberg products in October 1999.
Net sales for the six-month period ending June 30, 2000, of $9,899,479
compares with $5,954,434 in the same period in 1999. The increase in sales is
the result of the Nordberg distribution addition, approximately $1,460,000, and
the Irathane acquisition on March 31, 1999, approximately $2,450,000.
The Company's order backlog on June 30, 2000, was approximately $2,586,000.
Cost of Sales. Cost of sales as a percentage of net sales was 78.1% in the
second quarter of 2000 compared with 71.5% in the same quarter of 1999. The
increase was the result of Nordberg distributorship sales (which began in late
1999 and carry a higher cost of sales than manufactured product sales) and
unfavorable product mix.
Cost of sales for the first six months of 2000 was 76.0% of net sales
compared with 76.9% for the same period in 1999. This improvement was caused by
improved cost performance in most divisions, slightly offset by Nordberg sales
costs discussed above.
Selling, General and Administrative Expenses. Normal selling, general and
administrative expenses decreased from $999,237 (23.1% of net sales) in the
second quarter of 1999 to $739,859 (15.3% of net sales) in the same quarter of
2000. The decrease was the result of Company efforts in the fourth quarter of
1999 and the first quarter of 2000 to reduce staffing and administrative
expenses at all divisions and the corporate office. During the second quarter of
2000 the Company incurred $149,571 of expenses related to the move and
consolidation of Irathane's U.S. manufacturing facilities. This was partially
offset by $96,717 when the Company was able to sublease its Arizona facility and
move the idled equipment for less than the provision made for these expenses in
1999. For the six-month period ending June 30, 2000, normal selling, general and
administrative expenses of $1,578,678 (15.9% of net sales) compared with
expenses of $1,529,779 (25.7% of net sales) during the same period in 1999. The
decrease as a percentage of net sales was the result of the efforts to reduce
expenses described above and increased sales from the Nordberg distributorship
which have lower than average (6% of net sales) selling, general and
administrative expenses. Total moving and consolidation costs for the Irathane
facilities during the first six months of 2000 amounted to $365,541.
Nonoperating Income and Expense. The major nonoperating expense, interest
expense, increased from $148,319 in the second quarter of 1999 to $155,843 in
the same quarter of 2000. The increase was the result of higher interest rates,
partially offset by a lower total debt due to the sale of the Irathane Colorado
facility and corresponding debt reduction on March 31, 2000. The Company
recorded a gain on the sale of assets of $34,000 during the second quarter of
2000 when it sold several assets at TJ Products.
<PAGE>
For the six-month period ended June 30, interest expense increased from
$159,049 in 1999 to $329,358 in 2000. This increase was due to the timing of the
major bank note, the proceeds of which were received on March 30, 1999. For the
first six months of 2000 the Company recorded total gains of $235,576 from the
sale of assets. In addition to the TJ Products assets described above, the
Company also recorded a gain on the sale of the Irathane Colorado facility of
$201,576 in the first quarter.
Net Income. Net income (before tax) for the quarter ending June 30, 2000
was $148,850 and compares with $85,710 in the same quarter in 1999. The increase
was due to higher sales and lower administrative expenses, slightly offset by
higher cost of sales. Net income (before tax) for the six-month period ending
June 30, 2000, was $433,042 and compares to a loss in the same period of 1999 of
$291,644. The improvement was due to a significant increase in sales (66%).
Income Taxes. During the quarter ended June 30, 2000, the Company recorded
an income tax provision of $59,540. This compares with a provision of $35,554 in
the same quarter of 1999. For the six-month period ended June 30, 2000, the
Company recorded an income tax provision of $173,217. During the same period in
1999 the Company recorded a credit of $115,434. 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 $826,035 for the first six months of 2000. Working capital
component changes accounted for net cash usage of $1,470,899. Accounts
receivable increased by $1,073,036 and accounts payable and accrued expenses
decreased by $579,444. These working capital changes were partially offset by
net income, excluding depreciation and amortization, of $681,126.
The Company showed net cash provided by investing activities of $1,326,349
in the first six months of 2000. The major item was $1,697,986 from the proceeds
of the Colorado property sale. This was partially offset by $402,321 for the
purchase of property and equipment, which was primarily capital improvements to
the Hibbing Irathane plant.
The Company used $721,834 in financing activities during the first six
months of 2000. Nearly all of this amount, $708,986, was for the net reduction
on bank borrowings.
In total, the Company showed a net decrease in cash of $230,377 for the
first six months of 2000. This reduced the Company's cash balance from $563,845
to $333,468.
<PAGE>
Liquidity and Sources of Capital. During the first six 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 $942,907. This
was primarily used to finance the increase in accounts receivable and the cash
requirements related to the Irathane facility move.
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: August 2, 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>
Six Months Ended
June 30,
----------------
2000
----------
<S> <C>
Net income Per Share - basic:
Weighted average shares outstanding
during the period 4,175,810
----------
Net Income (Loss) $ 259,825
----------
Net income (loss) per share - basic $ .06
==========
Net income per share - diluted: $ .06
==========
</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 June 30, 2000.
