SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 8-K/A
(Amendment No. 2)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): August 29, 1997
RT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-20436 65-0309477
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1875 E. Lake Mary Boulevard, Sanford, Florida 32773
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (907) 322-4000
Former name or former address, if changed since last report
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The following financial statements and pro forma financial information
omitted from Form 8-K, dated September 15, 1997, in reliance upon instructions
7(a)(4) and 7(b)(2) of Form 8- K, are filed herewith.
(a). Financial Statements of Business Acquired.
Financial Statements of Quality Automotive Company and Subsidiaries for
fiscal 1996 and 1995.
(i) Report of Independent Public Accountants
(ii) Consolidated Balance Sheet as of December 31, 1996 and December
31, 1995
(iii) Consolidated Statements of Operations for the years ended
December 31, 1996 and December 31, 1995
(v) Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1996 and December 31, 1995
(iv) Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and December 31, 1995
(vi) Notes to Consolidated Financial Statements
(b). Pro Forma Financial Information.
Unaudited Pro Forma Condensed Consolidated Financial Statements for RT
Industries, Inc.
(i) Consolidated Statement of Income for the Nine Months ended
September 30, 1997 (unaudited)
(ii) Consolidated Statement of Income for the Year ended December
31, 1996 (unaudited)
(iii) Notes to Pro Forma Consolidated Statements of Income
(c). Exhibits.
Reference is made to the Exhibits previously filed with the Securities and
Exchange Commission as Exhibits to the Company's Report on Form 8-K, dated
September 15, 1997 and Form 8-K/A dated September 22, 1997 (Amendment No. 1).
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<PAGE>
Report of Independent Public Accountants
To the Board of Directors of
Quality Automotive Company:
We have audited the accompanying consolidated balance sheets of Quality
Automotive Company (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Quality Automotive
Company and subsidiaries as of December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Richmond, Virginia
March 12, 1997
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<PAGE>
Quality Automotive Company and Subsidiaries
Consolidated Balance Sheets
As of December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 65,684 $ 55,650
Accounts receivable, net of allowance of $148,000 and $68,000 2,082,236 2,398,022
Inventories 6,407,348 6,583,212
Prepaid expenses and other 198,781 213,357
----------- -----------
Total current assets 8,754,049 9,250,241
Property, plant, and equipment, net 4,730,936 4,968,299
Other assets, net of accumulated amortization 9,445 44,265
----------- -----------
Total assets $13,494,430 $14,262,805
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 918,927 $ 612,523
Accounts payable 1,425,671 1,357,157
Accrued expenses 135,555 186,945
Income taxes payable 38,764 300
Deferred income taxes 4,411 12,415
----------- -----------
Total current liabilities 2,523,328 2,169,340
Long-term debt, less current portion 5,641,174 6,867,220
Deferred income taxes 549,134 585,010
----------- -----------
Total liabilities 8,713,636 9,621,570
----------- -----------
Stockholders' equity:
Preferred stock, $150 cumulative, convertible Series A, par value $0.01 per
share; 20,000 shares authorized; 5,430 shares issued and outstanding in
1995
-- 54
Common stock, par value $1.00 per share; 150,000 shares authorized; 16,680
shares and 11,250 shares issued and outstanding at December 31, 1996 and
1995, respectively 16,680 11,250
Additional paid-in capital 1,815,030 1,820,406
Retained earnings 2,949,084 2,809,525
----------- -----------
Total stockholders' equity 4,780,794 4,641,235
----------- -----------
Total liabilities and stockholders' equity $13,494,430 $14,262,805
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
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<PAGE>
Quality Automotive Company and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 1996 and 1995
1996 1995
------------ ------------
Net sales $ 16,910,114 $ 20,892,460
Cost of sales 11,835,554 14,903,694
------------ ------------
Gross profit 5,074,560 5,988,766
Selling, general, and administrative expenses 4,153,080 4,497,071
------------ ------------
Operating income 921,480 1,491,695
------------ ------------
Other expenses:
Interest expense 675,755 868,028
Other expense, net (1,994) --
------------ ------------
Total other expenses 673,761 868,028
------------ ------------
Income before income taxes 247,719 623,667
Provision for income taxes 108,160 318,654
------------ ------------
Net income $ 139,559 $ 305,013
============ ============
The accompanying notes are an integral part of
these consolidated statements.
-5-
<PAGE>
Quality Automotive Company and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 54 $ 11,250 $ 1,820,406 $ 2,504,512 $ 4,336,222
Net income -- -- -- 305,013 305,013
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 54 11,250 1,820,406 2,809,525 4,641,235
Conversion of preferred stock
into common stock, June 1996 (54) 5,430 (5,376) -- --
Net income -- -- -- 139,559 139,559
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 $ -- $ 16,680 $ 1,815,030 $ 2,949,084 $ 4,780,794
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
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<PAGE>
Quality Automotive Company and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 139,559 $ 305,013
Adjustments to reconcile net income to net cash provided by operating
activities-
Gain on disposition of fixed assets (1,964) --
Depreciation and amortization 819,573 874,074
Deferred income tax benefit (43,880) (131,600)
Changes in assets and liabilities:
Decrease in accounts receivable, net 315,786 1,170,517
Decrease in income taxes receivable -- 402,979
Decrease in inventories 175,864 75,811
Decrease (increase) in prepaid expenses and other 14,576 (136,612)
Increase in other assets, net -- (4,615)
Increase (decrease) in accounts payable 68,514 (494,777)
Decrease in accrued expenses (51,390) (54,657)
Increase in income taxes payable 38,464 300
----------- -----------
Net cash provided by operating activities 1,475,102 2,006,433
----------- -----------
Cash flows from investing activities:
Capital expenditures (548,926) (759,059)
Proceeds from disposition of fixed assets 3,500 --
----------- -----------
Net cash used in investing activities (545,426) (759,059)
----------- -----------
Cash flows from financing activities:
Net repayments under revolving credit facility (1,243,967) (675,026)
Net borrowings (repayments) on notes payable 324,325 (619,788)
----------- -----------
Net cash used in financing activities (919,642) (1,294,814)
----------- -----------
Net increase (decrease) in cash 10,034 (47,440)
Cash, beginning of year 55,650 103,090
----------- -----------
Cash, end of year $ 65,684 $ 55,650
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 660,408 $ 875,365
=========== ===========
Cash paid during the year for income taxes $ -- $ 47,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
-7-
<PAGE>
Quality Automotive Company and Subsidiaries
Notes to Consolidated Financial Statements
As of December 31, 1996 and 1995
1. Summary of Significant Accounting Policies:
Principles of Consolidation
Quality Automotive Company (a Delaware corporation) and subsidiaries
(collectively, the "Company") operate in the brake remanufacturing industry. The
Company is composed of three entities: Quality Automotive Company, which
manufactures disc pads and re-manufactures used brake shoes for resale; US
Automotive, which produces friction materials in the form of disc pucks and
brake lining, which it sells to Quality Automotive Company and other
manufacturers; and Vireco, Inc., a property service company that deals
exclusively with Company matters. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company had sales to a
single customer of 11.0 percent in 1995. No single customer exceeded 10 percent
of the Company's 1996 sales. The Company sells the majority of its brake
products to auto part warehouses in the Eastern United States.
The Company is required by its lending agreements, among other things, to
prepare its financial statements in conformity with generally accepted
accounting principles. Conformity with generally accepted accounting principles
requires management to make and utilize estimates in the preparation of its
financial statements. Accordingly, these financials have been prepared utilizing
the required management estimates. Management believes that the estimates
utilized are prudent based on all available data; however, management cannot
guarantee that actual events will replicate the estimates utilized.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out ("FIFO") basis.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less an allowance for
depreciation. These assets are depreciated and amortized over their respective
estimated useful lives on a straight-line basis. Useful lives are as follows:
Years
-----
Buildings and improvements 3 - 40
Manufacturing equipment 2 - 15
Office furniture and equipment 3 - 5
Automobiles under capital leases 2 - 5
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<PAGE>
Long-Lived Assets
The carrying value of long-lived assets and certain identifiable intangibles is
reviewed by the Company for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable and an estimate of future undiscounted cash flows is less than the
carrying amount of the asset.
Income Taxes
The measurement of deferred tax assets or liabilities is based on the difference
between the financial statement and income tax bases of assets and liabilities
using the enacted marginal income tax rate. Deferred income tax expense or
benefit is based on the changes in the assets or liabilities from period to
period.
Revenue Recognition
Revenue from sales of automotive parts is recognized at the time the shipment is
made.
Sales and cost of sales include the value of steel ("core") used and returned to
be reused in the manufacturing process. Customers may return purchased core
within 90 days and receive credit that can be applied against future purchases.
Core returned in excess of that purchased from the Company is temporarily placed
in a "core bank"; credit for these returns is given if additional brake shoe
products are purchased within defined time limits.
2. Inventories:
Inventories consist of the following:
December 31,
-------------------------------
1996 1995
---------- ----------
Finished goods $2,596,068 $2,980,778
Raw materials 2,090,380 2,322,650
Core 1,444,369 1,032,097
Lining roll stock 85,552 92,234
Work in process 190,979 155,453
---------- ----------
$6,407,348 $6,583,212
========== ==========
Inventories are pledged as collateral on the Company's revolving credit facility
and note payable (see Note 4).
-9-
<PAGE>
3. Property, Plant, and Equipment:
Property, plant, and equipment consist of the following:
December 31,
----------------------------
1996 1995
------------ ------------
Land $ 385,000 $ 385,000
Buildings and improvements 4,830,801 4,796,030
Manufacturing equipment 5,672,417 5,238,728
Office furniture and equipment 433,861 386,558
Automobiles under capital leases 111,777 128,556
------------ ------------
11,433,856 10,934,872
Less- Accumulated depreciation and amortization (6,702,920) (5,966,573)
------------ ------------
$ 4,730,936 $ 4,968,299
============ ============
Property, plant, and equipment are pledged as collateral on the Company's
revolving credit facility and note payable (see Note 4). Depreciation and
amortization expense was $784,753 in 1996, and $842,354 in 1995.
4. Long-Term Debt and Financing Arrangements:
In May 1994, the Company amended its debt agreements to include a note payable
and a revolving credit facility (collectively, the "Agreement"). Under the
Agreement, the Company consolidated the existing term loans into one $3,000,000
note payable. In 1995, the Company amended the Agreement to, among other things,
extend the maturity date and lower the interest rate. The note is to be repaid
in monthly principal payments of $50,000 beginning in July 1995, with the
remaining balance due in March 1998. The outstanding balance at December 31,
1996, was $1,500,000.
Additionally, under the Agreement, the Company has available up to $7.5 million
under a revolving credit facility through March 1998. As of December 31, 1996,
the amount available was $5,139,882. The outstanding balance under the revolver
was $4,111,733 at December 31, 1996.
The 1995 amendment also established a new loan under which the Company may
borrow up to $1,000,000 to use for capital expenditures. The loan is to be
repaid in monthly installments, with the remainder due in March 1998.
At December 31, 1996, the Company had $910,001 outstanding on this loan.
The interest rate for borrowings under the Agreement is the lender's reference
rate plus 1.0 percent (9.25 percent at December 31, 1996). The revolver and note
payable are collateralized by substantially all assets of the Company.
-10-
<PAGE>
Under the terms of the Agreement, the Company must maintain certain financial
ratios, such as a current ratio greater than 1.90:1, interest coverage greater
than 1.25:1, debt service coverage greater than 1.25:1, tangible leverage less
than 3.0:1, and annual limits on the amounts of capital expenditures, dividends,
and executive compensation, among other restrictions. At December 31, 1996, the
Company was in compliance with the terms of the Agreement.
Other obligations relating to automobiles under capital leases totaled $38,367
at December 31, 1996, bear interest at rates ranging from 6.99 to 9.01 percent,
and are due through 2000.
Future maturities of debt are as follows:
Year Ending
December 31,
------------
1997 $ 918,927
1998 5,631,278
1999 8,187
2000 1,709
----------
$6,560,101
==========
Deferred financing costs at December 31, 1996 and 1995, amounted to $9,445 and
$44,265, respectively, net of accumulated amortization, and are included as
other assets in the accompanying balance sheets. Deferred financing costs are
being amortized over the life of the respective debt. Amortization expense
related to deferred financing costs was $34,820 in 1996 and $31,720 in 1995.
At December 31, 1996, the fair market value of the Company's outstanding debt
approximates its carrying value.
5. Income Taxes:
The Company's provision for income taxes is summarized as follows:
1996 1995
--------- ---------
Current tax provision:
Federal $ 128,008 $ 431,651
State 24,032 18,603
--------- ---------
152,040 450,254
--------- ---------
Deferred tax benefit:
Federal (36,945) (110,630)
State (6,935) (20,970)
--------- ---------
(43,880) (131,600)
--------- ---------
Provision for income taxes $ 108,160 $ 318,654
========= =========
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<PAGE>
A reconciliation of Federal statutory and effective income tax rates follows:
1996 1995
-------- --------
Federal income taxes at statutory rate (34%) $ 84,224 $212,047
Effect on:
State taxes, net of Federal benefit 11,743 25,007
Additional assessment and other 12,193 81,600
-------- --------
Provision for income taxes $108,160 $318,654
======== ========
Deferred taxes result from temporary differences in the recognition of revenues
and expenses for income tax and financial reporting purposes. The components of
deferred tax assets and liabilities are as follows:
1996 1995
--------- ---------
Deferred tax assets:
Inventory $ 196,978 $ 182,494
Allowance for doubtful accounts 48,032 25,860
Other 2,553 23,752
--------- ---------
247,563 232,106
========= =========
Deferred tax liabilities:
Accelerated depreciation (754,935) (817,543)
Other (46,173) (11,988)
--------- ---------
(801,108) (829,531)
--------- ---------
Net deferred tax liabilities $(553,545) $(597,425)
========= =========
The Company has no valuation allowances as of December 31, 1996 and 1995, nor
were there any changes during the years then ended.
6. Commitments and Contingencies:
Leases
The Company leases certain equipment under operating leases that expire through
2001. Rental fees are based upon fixed monthly charges in addition to contingent
fees based upon transportation equipment usage. The amount included as future
minimum lease payments does not include contingent fees. Rent expense amounted
to $703,745 in 1996, and $751,399 in 1995.
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<PAGE>
Future minimum lease payments under noncancelable operating leases as of
December 31, 1996, are as follows:
Year Ending
December 31,
------------
1997 $310,062
1998 137,866
1999 25,675
2000 24,142
2001 8,237
--------
Total $505,982
========
Environmental Expenditures
Environmental expenditures that relate to current or future revenues are
expensed or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations and do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments and/or cleanups are probable and the cost can be reasonably
estimated. Generally, the timing of these accruals coincides with the Company's
commitment to a formal plan of action.
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<PAGE>
RT Industries, Inc.
Pro Forma Consolidated Statement of Income
For the Nine Months Ended September 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Quality RT Industries,
RT Industries, Automotive Pro Forma Inc.
Inc. Company Adjustments Pro Forma
Nine months Eight months Nine months
Ended Ended Ended
September 30, August 29, September 30,
1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 3,345,739 $ 8,567,071 $ -- $ 11,912,810
Cost of goods sold 2,980,454 6,687,985 (87,936)(A) 9,580,503
------------ ------------ ------------ ------------
Gross profit 364,925 1,879,086 87,936 2,332,307
------------ ------------ ------------ ------------
Operating expenses:
Selling and delivery 518,751 1,202,830 -- 1,721,581
General and administrative 7,871,764 1,044,125 -- 8,915,889
Interest 3,688,317 429,750 240,000 (B) 4,358,067
Amortization 26,583 -- 212,664 (C) 239,247
------------ ------------ ------------ ------------
Total operating expenses 12,105,415 2,676,705 452,664 15,234,784
------------ ------------ ------------ ------------
Other expense -- 1,366 -- 1,366
------------ ------------ ------------ ------------
Loss before income taxes (11,740,490) (798,985) (364,728) (12,903,843)
Benefit for income taxes -- (321,591) 321,591 (D) --
------------ ------------ ------------ ------------
Net loss $ (11,740,490) $ (477,394) $ (686,319) $(12,903,843)
============ ============ ============ ============
Proforma Net Loss per share $ (1.01)
Proforma Weighted average
Shares outstanding 12,721,038
==========
</TABLE>
See accompanying notes to this pro forma consolidated statement of income.
-14-
<PAGE>
RT Industries, Inc.
Pro Forma Consolidated Statement of Income
For the Year Ended December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Quality RT Industries,
RT Industries, Automotive Pro Forma Inc.
Inc. Company Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 3,912,237 $ 16,910,114 $ -- $ 20,822,351
Cost of goods sold 5,335,027 11,835,554 (131,904)(A) 17,038,677
------------ ------------ ------------ ------------
Gross profit (loss) (1,422,790) 5,074,560 131,904 3,783,674
------------ ------------ ------------ ------------
Operating expenses:
Selling and delivery 574,939 2,441,123 -- 3,016,062
General and administrative 2,119,557 1,711,957 -- 3,831,514
Interest 2,027,746 675,755 360,000 (B) 3,063,501
Amortization -- -- 318,996 (C) 318,996
------------ ------------ ------------ ------------
Total operating expenses 4,722,242 4,828,835 678,996 10,230,073
------------ ------------ ------------ ------------
Other income 26,862 1,994 -- 28,856
------------ ------------ ------------ ------------
Income (loss) before
income taxes (6,118,170) 247,719 (547,092) (6,417,543)
Provision for income taxes -- 108,160 (108,160)(D) --
------------ ------------ ------------ ------------
Net income (loss) $(6,118,170) $ 139,559 $ (438,932) $ (6,417,543)
============ ============ ============ ============
Proforma Net loss per Share $ (0.74)
=============
Proforma Weighted average
shares outstanding 8,616,532
=============
</TABLE>
See accompanying notes to this pro forma consolidated statement of income.
-15-
<PAGE>
RT Industries, Inc.
Notes to Pro Forma Consolidated Statements of Income
(unaudited)
1. Basis of Reporting:
The unaudited pro forma consolidated statements of income of RT Industries, Inc.
and subsidiaries (the "Company") are provided to give effect to the merger on
August 29, 1997, of Quality Automotive Company ("Quality").
On August 29, 1997, Quality was merged (the "Merger") into QUAC Acquisition
Corp., a wholly owned subsidiary of the Company (the "Subsidiary"). Quality was
a privately held manufacturer of friction materials and brake pads, and a
remanufacturer of automotive brake shoes. Quality, with over 160 employees, is
based in Tappahannock, Virginia. Under the Merger, all of the outstanding shares
of common stock of Quality were converted into the right of Quality's
stockholders to receive (i) $3,000,000 in cash, (ii) two promissory notes, in
the aggregate amount of $4,500,000, from the Subsidiary (which promissory notes
are guaranteed by the Company and secured by the Company's pledge of all of its
shares in the Subsidiary); and (iii) an aggregate of 1,838,731 shares of the
Company's common stock. Following the Merger, the Subsidiary changed its name to
"Quality Automotive Company" and will conduct business under such name.
The pro forma consolidated statements of income for the nine months ended
September 30, 1997, and the year ended December 31, 1996, are based on the
Company's historical statement of income for the nine month period ending
September 30, 1997, Quality's historical statement of income for the period
ended August 29, 1997, and the Company's and Quality's historical statements of
income for the year ended December 31, 1996, with adjustments giving effect to
the Merger under the purchase method of accounting.
The pro forma consolidated statements of income should be read in conjunction
with the Company's unaudited financial statements for the nine months ended
September 30, 1997, the Company's annual report on Form 10-KSB for the year
ended December 31, 1996, and the accompanying historical financial statements
and notes of Quality for the years ended December 31, 1996 and 1995.
2. Consolidated Statements of Income Pro Forma Adjustments:
(A) To reflect changes in depreciation for the related periods in
connection with the change in values for property, plant and equipment
as a result of applying the purchase method of accounting; including
the review of fair market value and remaining economic useful lives of
such assets. The useful lives used were 30 for buildings and 3 to 15
for equipment.
-16-
<PAGE>
(B) To reflect interest for the related periods for the $4,500,000 notes
payable to the former shareholders of Quality. The notes bear interest
at 8%.
(C) To reflect the amortization of goodwill recognized in connection with
the Merger. Goodwill is being amortized over 20 years.
(D) To reflect the income tax position of the combined entities.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
RT INDUSTRIES, INC.
By: /s/ Martin Chevalier
---------------------------------
Martin Chevalier, President
and Chief Executive Officer
(Duly authorized officer)
Date: November 12, 1997
-18-
