SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
0-20436
Commission file number
RT Industries, Inc.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 65-0309477
(State of other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1875 E. Lake Mary Boulevard, Sanford, FL 32773
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (407) 322-8000
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 ___
As of November 6, 1997, the registrant had 12,858,613 shares outstanding of its
common stock, par value $0.001 per share.
<PAGE>
Part I
FINANCIAL INFORMATION
RT INDUSTRIES, INC.
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
ASSETS
Current Assets
Cash $ 2,664,969 $ 956,548
Accounts Receivable
(net of allowance for
doubtful accounts of $124,952
and $459,897, respectively 3,040,537 582,381
Inventory - Note 2 7,805,556 3,371,647
Prepaid Expenses,
and other 408,960 368,620
----------- -----------
Total Current Assets 13,920,022 5,279,196
Fixed Assets
(net of accumulated depreciation
of $577,839 and $3,228,005,
respectively) 10,038,133 3,161,293
Goodwill and Other Assets
(Net of accumulated amortization
of $26,583 and $237,142
respectively) 6,353,414 271,890
----------- -----------
Total Assets $30,311,569 $ 8,712,379
=========== ===========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
2
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RT INDUSTRIES, INC.
Condensed Consolidated Balance Sheets
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1997 1996
------------ ------------
(unaudited)
Current Liabilities
Note payable to bank (Note 4) $ 1,192,769 $ 758,486
Accounts Payable - trade 2,669,755 384,317
Accrued liabilities 581,748 226,460
Convertible Notes
Payable (Note 4) -- 436,511
------------ ------------
Total Current Liabilities 4,444,272 1,805,774
------------ ------------
Long Term Liabilities:
Long term debt, less current
maturities (Note 4) 5,387,897 298,874
Notes Payable to related parties 4,500,000 387,850
Convertible Notes Payable 5,000,000 1,800,000
------------ ------------
Stockholders' Equity
Common stock($0.001
par value, shares
authorized 30,000,000; 12,858,613
and 8,322,771 issued and outstanding) 12,859 8,323
Additional paid - in capital 33,888,411 15,592,938
Accumulated deficit (22,921,870) (11,181,380)
------------ ------------
Total Stockholders' Equity 10,979,400 4,419,881
------------ ------------
Total Liabilities
& Stockholders' Equity $ 30,311,569 $ 8,712,379
============ ============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
3
<PAGE>
RT INDUSTRIES, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
Nine Months Ended September 30,
1997 1996
------------ ------------
Net Sales $ 3,345,379 $ 3,194,619
Cost of Goods Sold 2,980,454 3,590,617
------------ ------------
Gross Profit (Loss) 364,925 (395,998)
Operating Expenses:
Selling and Delivery 518,751 463,920
General & Administrative 7,871,764 1,213,770
Interest 3,688,317 210,251
Amortization 26,583 --
------------ ------------
Total Operating Expenses 12,105,415 1,887,941
------------ ------------
Loss before Income Tax Benefit
and Extraordinary Gain (11,740,490) (2,283,939)
Extraordinary Gain -- 26,863
------------ ------------
Net Loss $(11,740,490) $ (2,257,076)
============ ============
Loss per share:
Continuing operations $ (1.06) $ (0.36)
Extraordinary gain -- --
------------ ------------
Net loss per share $ (1.06) $ (0.36)
============ ============
Weighted Average Shares Outstanding 11,086,610 6,354,877
============ ============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
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RT INDUSTRIES, INC.
Condensed Consolidated Statement of Operations
(Unaudited)
Three Months Ended September 30,
1997 1996
------------ ------------
Net Sales $ 1,850,076 $ 821,786
Cost of Goods Sold 1,591,819 789,580
------------ ------------
Gross Profit 258,257 32,206
Operating Expenses:
Selling and Delivery 287,170 150,356
General & Administrative 5,627,258 449,551
Interest 1,675,097 60,833
Amortization 26,583 --
------------ ------------
Total Operating Expenses 7,616,108 660,740
------------ ------------
Net Loss $ (7,357,851) $ (628,534)
============ ============
Net Loss per Share of Common Stock $ (0.66) $ (0.09)
============ ============
Weighted Average Shares Outstanding 11,086,610 6,771,801
============ ============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
<PAGE>
RT INDUSTRIES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
1997 1996
---- ----
Cash Flows From Operating Activities:
Net Loss ($11,740,490) ($2,257,076)
Adjustments to reconcile Net Loss
to net cash used by
operating activities:
Depreciation 477,448 444,169
Amortization 26,583 88,000
Provision for doubtful accounts 412,035 1,720
Provisions for inventory valuation 1,345,776 --
Provisions for property, plant and
equipment valuation 1,483,629 --
Convetible debentures interest expense 3,500,000 --
Issuance of Common Stock as payment for
professional services -- 62,500
Extraordinary item - cancellation of debt -- (26,863)
(Increase) Decrease In:
Accounts Receivable 581,219 22,418
Inventory 320,544 222,614
Prepaid Expenses and Other Assets 102,369 154,226
Increase (Decrease) In:
Accounts Payable and Accrued Liabilities 63,634 (656,236)
------------ ----------
Total Adjustments 8,313,237 312,548
------------ ----------
Net Cash Flows used in Operating Activities (3,427,253) (1,944,528)
------------ ----------
Cash Flows from Investing Activities:
Acquisition of Quality Automotive Company,
net of cash acquired (2,893,543) --
Proceeds from sale of property -- 771,962
Purchases of Fixed Assets (411,904) (167,305)
------------ ----------
Net cash flow (used in) provided by
investing activities (3,305,447) 604,657
------------ ----------
The accompanying notes are an integral part of
these condensed consolidated financial statements.
6
<PAGE>
RT INDUSTRIES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(continued)
Nine Months Ended September 30,
1997 1996
---- ----
Cash Flows from Financing Activities:
Proceeds from convertible debentures 10,500,000 --
Demand Note -- (1,646,970)
Notes Payable - Net (2,058,879) (1,080,394)
Net Proceeds from Issuance of Common Stock -- 3,967,559
---------- ----------
Net Cash Flows from Financing Activities 8,441,121 1,240,195
---------- ----------
Net Increase (Decrease) 1,708,421 (99,676)
Cash - Beginning of Year 956,548 121,417
---------- ----------
Cash - End of Period $ 2,664,969 $ 21,741
========== ==========
Supplemented cash flow information:
Notes payable exchanged for 300,000 shares
of common stock $ 300,000 --
Issuance of 1,838,731 shares of common stock 7,500,000 --
Notes payable to former shareholders' of
Qualtiy Automotive Company 4,500,000 --
Conversion of March 1997 convertible debentures
payable into 2,012,264 shares of common
stock 5,500,000 --
Conversion of December 1996 convertible
debentures payable into 383,100 shares
of common stock 1,500,000 --
Cash paid for interest 2,519,204 149,418
The accompanying notes are an integral part of
these condensed consolidated financial statements.
7
<PAGE>
RT INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
NOTE 1: Summary of Significant Accounting Policies
Description of Business
RT Industries, Inc., a Delaware corporation formed on January 16, 1992 (the
"Company"), manufactures, assembles and distributes new and rebuilt automotive
friction products (brake pads and remanufactured brake shoes). The Company sells
the friction products to the automotive aftermarket (replacement parts sold for
use on motor vehicles after initial vehicle purchase). Sales of the Company's
products are made to automotive distributors, mass merchandisers and chain
stores. The Company does not market its products directly to retail customers.
The Company's core business is the manufacture/assembly/distribution of new
replacement brake pads. Brake pads, brake shoes or a combination of both are
incorporated in all makes and models of American and imported automobiles. The
Company manufactures both "integrally molded" and "riveted" brake pads,
utilizing both organic and semi - metallic friction material. Integrally molded
brake pads involve a manufacturing process that uses heat and pressure to affix
the friction material to the metal backing plate. All imported and the majority
of late model domestic automobiles are equipped with integrally molded brake
pads. [Most older domestic automobiles are equipped with riveted brake pads,
whereby the friction material is affixed to the metal backing plate with metal
rivets.
With the acquisition, by merger, of Quality Automotive Company ("Quality") (see
Business Combination below), the Company acquired technology and capacity to
manufacture friction material linings for brake shoes, remanufacture both
riveted and bonded brake shoes. The Quality acquisition enables the Company to
offer customers a complete program of brake friction components and
substantially enhances the Company's marketing program.
Business Operations and Organization
The Company leases it plant facilities and equipment as well as
operates its business through a seven subsidiaries and/or
affiliated companies (Ultra Brake Corporation, Ultratech of South
Florida, Inc., Roinco Manufacturing, Inc., RT Friction, Inc.,
and, following the acquisition of Quality, Quality Automotive
Company, U.S. Automotive Friction, Inc. (f/k/a U.S. Automotive
Manufacturing, Inc.) and Verico, Inc.). As part of the Company's
on-going restructuring efforts, except for Quality and U.S.
Automotive Friction, Inc., such subsidiaries and/or affiliates no
8
<PAGE>
RT INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
(continued)
longer conduct any business operations other than their existing obligations
under various equipment and property leases. Such business operations have been
consolidated or performed by the Company or are being contracted out to the
industry. The Company intends dissolve such subsidiaries under the applicable
laws of each such subsidiary's place of incorporation.
In addition, as of November 13, 1997, the Company is changing its corporate
name to U.S. Automotive Manufacturing, Inc.
Unaudited Interim Statements
The accompanying unaudited consolidated financial statements of the Company and
its subsidiaries have been prepared in accordance with the instructions to Form
10 - QSB and do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (which consist only of normal
recurring adjustments) necessary for a fair presentation have been included. All
significant intercompany transactions and balances have been eliminated.
Operating results for the nine months ended September 30, 1997, are not
necessarily indicative of the results to be expected for the year ending
December 31, 1997. These financial statements and notes should be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10 - KSB for the year ended December 31, 1996
and the Company's report on Forms 8 - K filed in each of March 24, 1997 August
27, 1997 and September 15, 1997 and Forms 8 - K/A filed in each of April 2,
1997, September 22, 1997 and November 12, 1997.
Business Combination
On August 29, 1997, Quality was merged (the "Merger") into a wholly-owned
subsidiary of the Company (the "Subsidiary"). Under the Merger, Quality's
stockholders received (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
"Business").
Goodwill
As a result of the Merger, and in accordance with the purchase method of
accounting, the Company recorded goodwill representing the excess of the
purchase price over the allocation among the
9
<PAGE>
RT INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
(continued)
acquired assets and liabilities in accordance with estimates of fair market
value on the date of acquisition. Goodwill is being amortized over 20 years.
Amortization expense was $26,583, for the three months ended September 30, 1997.
Accumulated amortization at September 30, 1997 was $26,583.
Pro Forma Financials (Unaudited)
The unaudited pro forma results of operations which follow assume that the
acquisition occurred as of the beginning of the period presented:
Nine months ended September 30, 1997 1996
- --------------------------------------------------------------------------------
Net Sales $ 11,912,810 $ 16,975,568
Net Loss before extraordinary item (12,903,843) (2,230,816)
Extraordinary item -- 26,863
Net Loss (12,903,843) (2,203,953)
- --------------------------------------------------------------------------------
Loss per share
Continuing operations $ (1.01) $ (0.27)
Extraordinary gain -- --
------------ ------------
Net loss per share $ (1.01) $ (0.27)
================================================================================
10
<PAGE>
RT INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
(continued)
The pro forma information presented is for information purposes only and does
not purport to be indicative of the results which would actually have been
obtained if the combination had been in effect for the period indicated.
Note 2: Inventory
Major inventory components were as follows:
September 30, 1997 December 31, 1996
(unaudited)
------------------ -----------------
Raw Materials $3,843,952 $ 662,504
Work in Progress 293,988 154,273
Finished Goods 3,667,616 2,554,870
---------- ----------
Total Inventory $7,805,556 $3,371,647
========== ==========
NOTE 3: LOSS PER SHARE
For the nine months ended September 30, 1997 and 1996, the number of shares used
in computing per share amounts were 11,086,610 and 6,354,877, respectively.
NOTE 4: Notes Payable
Line of Credit
In June 1997, the Company paid off its line of credit with Congress Financial
Corp. (the "Credit Facility") which Credit Facility had been collateralized by
substantially all of the Company's business assets. As a result of this action,
any such security interest held by the Lender have been released.
With the acquisition of Quality in August 1997, the Company assumed Quality's
existing line of credit with LaSalle Business Credit, Inc. (the "LaSalle Line of
Credit"). At September 30, 1997, a total of Four Million Three Hundred Twenty
Six Thousand Four Hundred Sixty Four Dollars ($4,326,464) was outstanding under
the LaSalle Line of Credit. The LaSalle Line of Credit terminates on March 31,
1998 and the Company is currently negotiating its renewal. There can be no
assurance that the LaSalle Line of Credit will be renewed on terms acceptable to
the Company or at all.
Convertible Debentures
In March 1997, the Company entered into Offshore Securities Subscription
Agreement pursuant to which the Company sold four (4) 10% Cumulative Convertible
Debentures (the "March Debentures"), in the aggregate amount of Five Million
Five Hundred Thousand US Dollars ($5,500,000). All of the March Debentures,
including principal and accrued interest, were converted into an aggregate of
2,012,264 shares of the Company's Common Stock, par value $.001 per share (the
"RT Stock"), 1,085,600 shares of which were converted during the three-month
period ending September 30, 1997. The Company reported the March Debentures at
$4,514,815, net of an amortized conversion discount of $985,185, which amount
was charged to operations in June 1997 as interest expense.
On August 20, 1997, the Company entered into another Offshore Securities
Subscription Agreement pursuant to which the Company sold five (5) additional
10% Cumulative Convertible Debentures (the "August Debentures") in the aggregate
amount of Five Million US Dollars ($5,000,000). The August Debentures mature on
August 20, 1999 (the "Maturity Date") but may be converted into shares of RT
Stock any time commencing sixty (60) days after the date of issuance of the
August Debenture. Each August Debenture entitles the holder to interest (payable
in cash or in kind as shares) on the unpaid principal amount at the date of
conversion (the "Conversion Date") at the rate of 10% per year, payable on a
11
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RT INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
(continued)
pro-rata basis at the earlier of (i) the date the August Debenture is converted
or redeemed or (ii) the Maturity Date.
Both the March and August RT Debentures were issued in reliance upon exemption
from the registration provisions of the Securities Act of 1933, as amended, as
provided by Regulation S ("Reg S") promulgated thereunder by the Securities and
Exchange Commission.
Equipment Loans
As of September 30, 1997, the Company and/or its subsidiaries was party to five
outstanding equipment loans, as follows:
(i) An equipment loan with the City of Brownsville, TN, which was
refinanced in 1995, having an outstanding principal balance of $158,419 plus
interest equal to prime minus 5%, with a floor of 2.5% and a cap of 6.5%.
Monthly installments on the note equal $2,616, with the final installment
payment due in March 2003.
(ii) An equipment loan with Concord Financial having an outstanding
balance of $96,496, which loan is currently payable in monthly installments of
$11,107, with the final installment due June 1998.
(iii) The reinstated equipment loan with the First State Bank & Trust
Co. of Caruthersville, MO and the US Small Business Administration in connection
with the Company's former facility in Missouri, having an outstanding principal
balance of $153,856. Monthly installments under the loan are $5,678, with the
final installment due July 2002.
(iv) An equipment loan with LaSalle Business Credit, Inc. in the amount
of $1,050,000 as of September 30, 1997, for equipment located at Quality's
location in Virginia. The loan installments of $50,000 are paid monthly, with
the final loan installment and the balance due March 31, 1998. It is the
Company's intention to renew this loan as part of the negotiations for renewal
of the LaSalle Line of Credit. There can be no assurance that such loan will be
renewed upon terms and conditions acceptable to the Company or at all.
(v) An additional equipment loan with LaSalle Business Credit, Inc. in
the amount of $795,431 as of September 30, 1997, for equipment located at
Quality's location in Virginia. The loan installments of $31,068, are paid
monthly, with the final loan installment and the balance due March 31, 1998. It
is the Company's intention to renew this loan also in connection with the
negotiations for renewal of the LaSalle Line of Credit.
12
<PAGE>
RT INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
(continued)
There can be no assurance that such loan will be renewed upon terms and
conditions acceptable to the Company or at all.
Promissory Note
In June 1997, the Company executed a note, in the amount of $350,000, payable on
the three month anniversary to Elmgrove Associates II, L.P. (the "Elmgrove
Note"), the proceeds of which were used in connection with a negotiated
amendment to that Settlement Agreement dated January 30, 1997 (the "Settlement")
with the former President, CEO, and Chairman of the Board of Directors of the
Company, and related parties (collectively, the "Settling Parties"). Under its
amended terms, the Settlement provided for a final payment to the Settlement
Parties, in the aggregate sum of $350,000, in full satisfaction of the
obligations of the parties under the Settlement. The Company paid in full the
Elmgrove Note on August 31, 1997.
13
<PAGE>
RT INDUSTRIES, INC.
Notes to Consolidated Financial Statements
September 30, 1997
(Unaudited)
-(continued)-
NOTE 5: The Composition
On March 7, 1995, in connection with a restructuring of the Company's debt, a
committee of the Company's unsecured trade creditors (the "Trade Creditors")
entered into an agreement (the "Composition Agreement"), providing for repayment
by the Company of the unsecured trade debt (the "Trade Debt") of the Trade
Creditors electing to participate in the Composition Agreement, representing
approximately $2,732,000 of the aggregate $3,032,000 in Trade Debt. (See Exhibit
10.35 previously submitted on Form S-18, as amended, initially filed with the
SEC on April 8, 1992; Note 5 to the Consolidated Financial Statements in Form
10-QSB for the First Quarter 1996 for a discussion of the proposals,
ratification process and funding of the same.) Trade Creditors, representing
approximately $2,500,000 of the Trade Debt, elected a lump sum payment of $0.35
for every $1.00 of the Trade Debt and have been paid. Trade Creditors,
representing $232,000 of the Trade Debt, elected periodic payments and have
received fifteen percent (15%) of the periodic payments. The next distribution
under the Composition Agreement, payable in March 1998, is for an aggregate
payment of approximately $25,000. Subsequent payments become payable in the
first quarter of 1998 as well as the third quarters of 1998 and 1999.
The Company successfully negotiated settlements with respect to almost all of
the Trade Debt held by the seven percent (7%) of the unsecured trade creditors
not electing to participate in the Composition Agreement, representing
approximately $300,000 of the Trade Debt. The Company has satisfied its
obligation to such non-electing trade creditors in accordance with such
settlement arrangements.
14
<PAGE>
RT INDUSTRIES, INC.
Notes to Condensed Consolidated Financial Statements
September 30, 1997
(Unaudited)
-(continued)-
NOTE 6: Other Events
In May 1992 the Company entered into a lease agreement with the City of
Caruthersville, Caruthersville, MO (the "Missouri Facility"), for a lease of a
25,000 square foot building for use by the Company for manufacturing and
distribution. As part of the Company's restructuring plan the Company ceased
operations at the Missouri Facility. Although, the City of Caruthersville has
attempted to find a tenant for the Missouri Facility, it has been unsuccessful
in finding a long term tenant for the facility, and, in the first quarter of
1997, informed the Company that it had only succeeded in subletting the building
for 14 of the past 37 months. The Company remains obligated for lease payments,
at a monthly rate of two thousand two hundred seventy dollars ($2,270) per
month, with respect to the 23 month vacancy period. The Company recorded a
charge of $228,807 in 1997 to reduce the net carrying amount to the estimated
realizable value. The original lease expires in August 2013. The Company is
negotiating with the City of Caruthersville to resolve settlement of future
rental payments under the building lease.
15
<PAGE>
RT INDUSTRIES, INC.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Statements other than historical information contained in this report are
considered forward looking and involve a number of risks and uncertainties.
Factors that could cause such statements not to be accurate include, but are not
limited to, increased competition for the Company's products, improvements in
alternative technologies, a lack of market acceptance for new products
introduced by the Company, the failure of the Company to successfully market
its products and other factors detailed in the Company's filings with the SEC.
General
On August 31, 1997, the Company acquired, by merger, Quality (the "Quality
Acquisition"). See Note 1 "Business Combination" of the Notes to the
Consolidated Financial Statements for a description of the Quality Acquisition;
and the Report filed on Form 8-K with the SEC on September 15, 1997, as
supplemented by Form 8 - K/A dated November 12, 1997 (Amendment No. 2).
Results of Operations
Nine Months Ended September 30, 1997, Compared to Nine Months Ended
September 30, 1996.
Net Sales for the nine month period ended September 30, 1997 and September 30,
1996 were $3,345,379 and $3,194,619, respectively. The increase in net sales is
attributable to the contribution of $1,178,225 in net sales for the month of
September 1997 from Quality as a result of the Quality Acquisition, which has
significantly enhanced the Company's customer base, product lines and production
capacity (See Item 5: Other Information).
Gross Profit for the period ending September 30, 1997 was $364,925 as compared
to a loss of $395,998 for period ending September 30, 1996. This increase in
gross profit resulted from increased operations at the Company's Florida
Facility, in the amount of $201,643 for the nine month period and Quality's
Gross Profit of $163,282 for the month of September 1997.
Total Operating Expenses for the nine month period ending September 30, 1997 and
September 30, 1996, were $12,078,832 and $1,887,941, respectively. The increase
in Total Operating Expenses is the result of the following: 1) increases in
professional fees to $1,323,359 ($500,000 of investment banking fees associated
with the acquisition); 2) the write - off of fixed assets of $1,583,629, to
reflect the current value of machinery and equipment in the Sanford, Fl plant;
3) the expense of $228,807 in connection with the write-down of the net carrying
amount to the estimated realizable value of the Missouri Facility; 4) the fees
of $1,200,000 for the placement of the cumulative convertible debentures; 5) the
interest expense of $3,500,000 incurred with respect to the conversion of the
March and August Debentures; 6) the write - off of inventory in the amount of
$231,653; 7) the expenses of $1,114,123 for a provision for inventory obsolence;
8) the operating expenses of $310,372 for the month of September 1997, of
Quality Automotive Company; and 9) the write - off $412,035 in non- collectable
receivables.
16
<PAGE>
RT INDUSTRIES, INC.
Interest expense for the nine month period ending September 30, 1997 and
September 30, 1996, was $3,688,317 and $210,251 respectively. The net increase
of $3,478,066 was the result of an expense of $3,500,000 relating to the
conversion discount on the $10,500,000 of March and August Debentures, and a
decrease in interest resulting from the payoff of the Congress Line of Credit.
The net loss for the nine month period ending September 30, 1997 and September
30, 1996 was $11,740,490 and $2,257,076, respectively. The increase of
$9,483,414 was the result of the increased Total Operating Expense. The majority
of the increased expenses in operating costs are related to non-recurring costs
associated with the placement of the March and August Debentures and the Quality
Acquisition.
Three Months Ended September 30, 1997, Compared to Three Months Ended
September 30, 1996.
Net sales for the three month period ended September 30, 1997 and September 30,
1996, were $1,850,076, and $821,786, respectively. The increase in net sales is
attributable to the contribution of $1,179,225, in net sales for the month
September 1997, from Quality.
Gross Profits for the three month period ended September 30, 1997 and September
30, 1996, were $258,257, and $150,356, respectively. The Company's Sanford, FL
location contributed $94,975 in Gross Profit, and Quality contributed $163,282,
for the month of September 1997.
Total Operating Expenses for the three month period ended September 30, 1997 and
September 30, 1996, were $7,589,525, and $660,740, respectively. This increase
in Total Operating Expenses is detailed in the discussion of the nine months
results.
Interest Expenses for the three month period ended September 30, 1997 and
September 30, 1996, were $1,675,097, and $60,833, respectively. The increase of
$1,614,264 was the result of expenses associated with the conversion discount
expense on the March and August Debentures.
17
<PAGE>
RT INDUSTRIES, INC.
The net loss for the three month period ended September 30, 1997 and September
30, 1996, was $7,357,851, and $628,534, respectively. This loss is related to
the non-recurring costs associated with the placement of the March and August
Debentures and the Quality Acquisition.
Liquidity and Capital Resources
At September 30, 1997 the Company had approximately $2,664,969 in cash, cash
equivalents and investments and had working capital of approximately
$13,920,022.
Net cash used in operating activities aggregated $3,427,253 for the nine months
ended September 30, 1997, as compared with net cash used of $1,944,528 for the
nine months ended September 30, 1996. The increase in cash used was the result
of ongoning operating losses.
Net cash provided from financing activities was $8,441,121 and $1,240,195 in the
nine month period ended September 30, 1997 and 1996, respectively. The cash from
investing activities was generated through the placement of cumulative
convertible debentures (See Note 4).
Inflation
Inflation has not historically had a material impact on the Company's
operations.
Seasonality
The operations of the Company are considered seasonal,with the majority of the
sales occurring in the second and third quarters.
The restructuring of the Company which began in the third quarter of 1994, has
resulted in the settlement and/or refinancing of the Company's debt. The
following are the current results of this restructuring.
1) The Composition Agreement has been implemented. (See " Management's
Discussion and Analysis or Plan of Operation" in Form 10-KSB for year ended
December 31, 1996.)
2) The Company successfully negotiated a reinstatement of the equipment
loan with the City of Brownsville, TN in 1995. (See" Note 4: Notes Payable)
3) The equipment loan with the First State Bank & Trust Co. of
Caruthersville, MO and the US Small Business Administration was reinstated. (See
Note 4: Notes Payable)
4) The land and building of the Brownsville, TN facility was sold to an
unrelated third party in October 1996. (See "Management's Discussion and
Analysis or Plan of Operation" in Form 10-KSB for the year ended December 31,
1996.)
5) All pending legal proceedings and claims which had been made against the
Company (and its former President and Vice President of Operations) as a result
of the termination of the Company's operations at its City of Caruthersville,
Missouri facility have been dismissed. (See "Management's Discussion and
Analysis or Plan of Operation" in Form 10-KSB for the year ended December 31,
1996.)
In March 1997, and August 1997, the Company issued a total of $5,500,000 and
$5,000,000, respectively, of convertible debentures pursuant to Reg S. (See Note
4: Notes Payable). The funds received from the issue of the debentures will be
used for: a) possible acquisitions; b) general operating expenses; and c) the
purchase of new plant equipment. Interest expense of $3,500,000 has been
recorded through September 1997, for the difference between the conversion
prices of the March and August Debentures and the fair market value of the
Company's common stock at the date of issuance.
18
<PAGE>
RT INDUSTRIES, INC.
PART II: OTHER INFORMATION
ITEM 2: Changes in Securities and Use of Proceeds
In June 1997, the Company issued to Elm Grove Associates II, L.P. ("Elm Grove"),
a limited partnership of which one of the directors of the Company is president
of the general partner, warrants to purchase 10,000 shares of RT Stock (the "Elm
Grove Warrants") at an exercise price of $3.75 per share. The Elm Grove Warrants
represented partial consideration for that $350,000 loan to the Company from Elm
Grove in connection with the amended Settlement Agreement between the Company
and the former CEO, President and Chairman of the Company.
On August 20, 1997, the Company issued 10% convertible Debentures, convertible
anytime commencing sixty (60) days after the date of issuance. The terms and
conditions of such Debentures are more particularly set forth in the Company's
Report filed on Form 8-K on August 27, 1997.
ITEM 5: Other Information
Merger
As previously reported by the Company in its Form 8-K for the event dated August
29, 1997 Quality was merged into QUAC Acquisition Corp., a wholly - owned
subsidiary of the Company (the "Subsidiary"). Quality was a privately held
manufacturer of friction materials, brake pads, and a remanufacturer of
automotive brake shoes. Quality with over 160 employees is based in
Tappahannock, Virginia. Pursuant to the merger, Quality's stockholders received
(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 Quality Acquistion, the Subsidiary changed its name to
"Quality Automotive Company" and will conduct business under such name. Quality
is in the business of manufacturing, distributing and selling automotive brake
components.
Convertible Debenture Issuance
As previously reported by the Company in its Form 8-K for the event dated August
20, 1997 the Company sold 10% Cumulative Convertible Debentures, in
the aggregate amount of $5 million, under Regulation S as promulgated
by the Securities and Exchange Commission under the Securities Act of 1933, as
amended. Such Debentures entitle the holders (i) to interest (payable in cash or
in kind as Shares) on the unpaid principal amount at the date of conversion at
the rate of 10% per year, payable on a pro - rata basis and (ii) to convert the
Debenture, whether whole or in part, into the Company's Common Stock at a
conversion price equal to the lesser of seventy five percent (75%) of (a) the
average closing bid price of the shares of Common Stock of the Company as quoted
on NASDAQ for the five (5) trading days preceding the date on which notice of
conversion is effective, or (b) one hundred ten percent (110%) of the
19
<PAGE>
RT INDUSTRIES, INC.
average closing bid price of the shares of Common Stock of the Company as quoted
on NASDAQ for the five (5) trading days preceding the date on which the funds
necessary to purchase such Debentures were received by the Company.
Name Change
On November 7, 1997, the Company changed its corporate name to U. S. Automotive
Manufacturing, Inc., having the new NASDAQ trading symbol of USAM, effective as
of November 13, 1997.
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Form 8-K
The Company filed Reports on Forms 8-K on each of: (i) August 27, 1997, and (ii)
September 15, 1997, as supplemented by amendments on Forms 8 - K/A dated
September 25, 1997 (Amendment 1) and November 12, 1997 (Amendment 2).
20
<PAGE>
RT INDUSTRIES, INC.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to sign on its behalf by the undersigned
thereunto duly authorized.
Dated: November 12, 1997 RT Industries, Inc.
By: /S/ Martin Chevalier, Sr.
-------------------------------------
Martin Chevalier, Sr.
President and Chief Executive Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 10QSB for
the fiscal quarter ended September 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> $2,664,969
<SECURITIES> 0
<RECEIVABLES> 3,165,589
<ALLOWANCES> 124,952
<INVENTORY> 7,805,556
<CURRENT-ASSETS> 13,920,002
<PP&E> 10,615,972
<DEPRECIATION> 577,839
<TOTAL-ASSETS> 30,311,569
<CURRENT-LIABILITIES> 4,444,272
<BONDS> 0
0
0
<COMMON> 11,590
<OTHER-SE> 10,967,810
<TOTAL-LIABILITY-AND-EQUITY> 30,311,569
<SALES> 3,345,379
<TOTAL-REVENUES> 3,345,379
<CGS> 2,980,454
<TOTAL-COSTS> 2,980,454
<OTHER-EXPENSES> 26,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,688,317
<INCOME-PRETAX> ($11,740,490)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,740,490)
<EPS-PRIMARY> (1.06)
<EPS-DILUTED> (1.06)
</TABLE>
