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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number : 0-25974
R-B RUBBER PRODUCTS, INC.
(Name of small business issuer in its charter)
OREGON 93-0967413
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
904 EAST 10TH STREET
MCMINNVILLE, OREGON 97128
(Address of principal executive offices and zip code)
(503) 472-4691
(Issuer's telephone number)
SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(g OF THE EXCHANGE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were $5,293,835. The
aggregate market value of voting stock held by non-affiliates of the registrant
was $2,387,574 as of February 28, 1997, based upon the last sales price as
reported on the Nasdaq System-Small Cap Market.
The number of shares outstanding of the Registrant's Common Stock as of February
28, 1997 was 2,172,500 shares.
The index to exhibits appears on page 11 of this document.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
DOCUMENTS INCORPORATED BY REFERENCE
The issuer has incorporated into Part III of Form 10-KSB, by reference, portions
of its Proxy Statement dated March 20, 1997.
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R-B RUBBER PRODUCTS, INC.
FORM 10-KSB INDEX
PART I
Page
----
Item 1. Description of Business 2
Item 2. Description of Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 6
Item 6. Management's Discussion and Analysis or Plan of Operation 6
Item 7. Financial Statements 9
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 9
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 10
Item 10. Executive Compensation 10
Item 11. Security Ownership of Certain Beneficial Owners and Management 10
Item 12. Certain Relationships and Related Transactions 11
Item 13. Exhibits and Reports on Form 8-K 11
Signatures 13
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
R-B Rubber Products, Inc. (the "Company") was incorporated in Oregon in
September 1986. The Company is a vertically integrated rubber recycler and
manufacturer that processes scrap tires and rubber to produce high quality,
durable rubber mats and other protective surfaces. The Company sells its
products to agribusiness concerns, sports and fitness facilities and other
commercial and industrial users.
PRODUCTS
Applications for the Company's products generally fall into one of two primary
markets, agribusiness or fitness. Within each of these, the Company
manufactures and sells a variety of products designed to meet consumer
requirements.
AGRIBUSINESS. Approximately 71 percent of the Company's 1996 sales were
for rubber matting used in agricultural surfacing. These products include,
flooring for horse and livestock trailers, stalls and wash areas. Rubber
matting has significant advantages over other flooring options, such as straw,
dirt or wood, because of its improved comfort and safety for the animal and the
reduction of cleaning time and bedding costs.
FITNESS AND SPORTS FACILITIES. Sales of rubber matting for sports and
fitness applications accounted for approximately 17 percent of sales in 1996.
These sales were primarily for weight room flooring in gyms, private clubs,
military bases, colleges and high schools. The Company has been named a
"preferred" or "recommended" vendor for YMCA and Gold's and World Gyms for more
than two years.
The Company also markets other products including ancillary goods. Some of
these products are manufactured by the Company and some are purchased from third
party vendors. These products include truck bed liners, rubber edging, drain
tiles and thinner specialty mat products. The Company also markets coated
rubber mats and coatings for other products which are produced by its
subsidiary, Strata Surfacing. These products accounted for approximately 12
percent of the Company's sales in 1996.
PRODUCT DISTRIBUTION
The Company sells its products through several channels, including Original
Equipment Manufacturers, distributors, retailers and directly to the end-user.
This strategy enables the Company to obtain a diversified distribution of its
products while at the same time maintaining direct contact with many of its end
users. In 1996, most sales were to distributors and retailers.
ORIGINAL EQUIPMENT MANUFACTURERS. In 1996 17 percent of the Company's
revenues were from sales to OEMs. This is primarily from sales to horse trailer
manufacturers.
DISTRIBUTORS AND RETAILERS. The majority of the Company's products, were
sold through these channels in 1996. These customers include major agricultural
supply retailers, automotive tire and accessory retailers, as well as fitness
equipment suppliers.
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END USERS. Individuals contact the Company (via an 800 number) in response
to Company advertisements or referrals from other users. In most cases, these
callers are referred to dealers in their local area. Because of this, only a
relatively small portion of the company's total sales have been at retail
prices, directly to end-users, however the Company believes this distribution
channel is important because of the direct feedback it receives from these
customers.
To facilitate product availability and lower the cost of freight to its
customers, the Company has added three strategically located warehouses. These
warehouses, located in North Carolina, Missouri and Texas, enable the Company to
transport, by rail, larger quantities of mats per shipment. The mats are then
shipped in smaller quantities to the customer.
NEW PRODUCTS
Several new product are planned to be introduced in 1997 including color
matting, playground tile and interlocking tile for the fitness market.
COMPETITION
The market for the Company's products is highly competitive. Some of the
Company's competitors may be larger or have greater financial resources than the
Company. The Company is one of the largest manufacturers of heavy rubber matting
in North America. Its principal competition in the agribusiness market comes
from North West Rubber located in British Columbia, Canada and Kraiberg located
in Germany; and in the fitness industry from Humane Equipment in Wisconsin. The
number of competitors within specific product categories in the rubber mat
industry has been decreasing, consequently the remaining manufacturers,
including the Company, have been increasing sales to fulfill the demand and
thereby increasing their market share.
Competitive factors include quality, service (including availability and timely
delivery), price and reliability. The Company believes that it currently
competes favorably with respect to these factors. There can be no assurance,
however, that competitors will not substantially increase their resources
devoted to the development and marketing of products competitive with those of
the Company.
RAW MATERIALS
In 1996, the Company completed upgrades to its plant and equipment, allowing it
to process lower cost and more abundant tire chips, which have become its
primary source of raw materials. Prior to that, the Company relied on tire
grindings or "buffings" from tire recapping operations. Buffings require less
processing before being used for mat manufacturing, but were more costly and in
tight supply. The Company has a contract with a local supplier for a specified
amount of tire chips. In 1996, approximately 30 percent of the materials
required for production were from this supplier, and the Company expects that
approximately 85 percent of raw materials needed for production in 1997 will
come from this supplier. The Company continues to use buffings, as well as
rejected rubber from shoe, plumbing and sheet stock manufacturers for raw
material.
SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
One customer accounted for 16.2 percent of net sales for the year ended December
31, 1996 and 32 percent of the accounts receivable balance at December 31, 1996.
No other customer accounted for more than 5 percent of net sales for the year
ended December 31,
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1996, however, three other customers represented between 5.1 percent, 10.1
percent and 11.4 percent of the accounts receivable balance at December 31,
1996. Balances outstanding at December 31, 1996 for all customers indicated
above have been subsequently collected.
BACKLOG
The Company's customers generally order products for immediate delivery, and the
Company generally is able to meet such demand . However, at December 31, 1996,
due to constrained capacity, the Company had a backlog of approximately
$250,000. This backlog turned during the first month of 1997. The stated
backlog is not necessarily indicative of Company sales for any future period nor
is a backlog any assurance that the Company will realize a profit from filling
the orders. The backlog at December 31, 1995 was not material.
INTELLECTUAL PROPERTY
The Company has chosen not to apply for patent protection for its products,
equipment or processes. The company's success and future revenue growth will
depend, in part, upon its ability to protect its trade secrets. The Company
relies on trade secret laws and confidentiality agreements to protect its
proprietary know-how. There can be no assurance that such measures will provide
meaningful protection for the Company's trade secrets or other proprietary
information. The Company's business may be adversely affected by competitors
that independently develop substantially equivalent products, equipment and
processes. The Company will attempt to keep its products, equipment and
processes, and the results of its research and development program proprietary,
but it may not be able to prevent others from using some or all of such
information or technology without compensation to the Company. The Company uses
the following tradenames: R-B Rubber Products, Arobitile and Tenderfoot. The
Company has trademarked the name Bounce Back-TM-. The Company is not aware of
any conflicting or competing uses of its tradenames or trademarks.
RESEARCH AND DEVELOPMENT
The Company expensed $13,403 and $23,087 on research and development activities
during the years ended December 31, 1996 and 1995.
ENVIRONMENTAL REGULATIONS
The Company's operations are subject to federal, state and local environmental
laws and regulations that impose limitations on the discharge of pollutants in
the environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of certain materials,
substances and wastes. To the best of the Company's knowledge, the Company's
operations are in substantial compliance with the terms of all applicable
environmental laws and regulations as currently interpreted. While historically
the Company has not had to make significant capital expenditures for
environmental compliance, the Company cannot predict with any certainty its
future capital expenditures for environmental compliance because of continually
changing compliance standards and technology. Furthermore, actions by federal,
state and local governments concerning environmental matters could result in
laws or regulations that could increase the cost of producing the products
manufactured by the Company or otherwise adversely affect the demand for its
products. Additionally, the Company does not currently have any
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insurance coverage for environmental liabilities and does not anticipate a need
to obtain such coverage in the future.
EMPLOYEES
At December 31, 1996, the Company employed 52 persons, 48 of which were full
time employees and 4 of which were part time employees. None of the Company's
employees are covered by collective bargaining agreements, and the Company
believes its relations with its employees are good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters and manufacturing space are housed in the
same facility which is located in McMinnville, Oregon, approximately 35 miles
west of Portland, Oregon. The facility consists of approximately 24,000 square
feet of space on approximately four acres of land. Prior to September 29, 1995,
the Company leased such facility and land from a related party and on September
29, 1995, the Company purchased the facility. At December 31, 1995, the Company
had an outstanding note payable at 9.24 percent interest, payable $6,895 per
month, including interest, through October 5, 2005. The Company believes that
this facility is adequate to accommodate currently planned expansion. See Item
12. below.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit filed by one of its former employees.
Because of the recent nature of this action, the Company is unable to assess the
probable outcome. However, the Company believes the suit is without merit and
is vigorously defending its position, and does not believe it will have a
material effect on the Company's financial position, results of operations or
cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
quarter ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Association of Securities
Dealers Automated Quotation System -Small Cap Market ("Nasdaq-Small Cap") under
the symbol "RBBR." The following table sets forth the high and low sales prices
as reported by Nasdaq-Small Cap for the periods indicated. The Company's Common
Stock commenced trading on May 11, 1995.
Year Ended December 31, 1996 High Low
------------------------------ ------- -------
Quarter 4 $ 2.13 $ 1.50
Quarter 3 2.50 1.38
Quarter 2 4.13 2.25
Quarter 1 4.00 2.38
Year Ended December 31, 1995
------------------------------
Quarter 4 $ 4.75 $ 3.00
Quarter 3 5.25 4.25
Quarter 2 (from May 11, 1995) 5.38 3.88
The number of shareholders of record on February 28, 1997 was 113. There were
no cash dividends declared or paid in fiscal years 1996 or 1995. The Company
does not anticipate declaring such dividends in the foreseeable future.
There were no sales of unregistered securities by the Company during the year
ended December 31, 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-KSB, including Management's Discussion and
Analysis or Plan of Operation contains forward looking statements that involve a
number of risks and uncertainties. Future market conditions are subject to
supply and demand conditions and decisions of other market participants over
which the Company has no control and which are inherently very difficult to
predict. Accordingly, there can be no assurance that the Company's revenues
will improve. In addition, there are other factors that could cause actual
results to differ materially, including competitive pressures, increased demand
for the Company's raw materials and the risk factors listed from time to time in
the Company's Securities and Exchange Commission reports. The Company wished to
caution the reader that these forward looking statements, such as the statements
concerning new product introductions and the effect of litigation, are only
predictions and are not statements of historical fact.
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RESULTS OF OPERATIONS
The following table sets forth, as a percentage of sales, certain statement of
operations data for the years ended December 31, 1996 and 1995:
1996 1995
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Sales 100 % 100 %
Cost of goods sold 65 67
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Gross profit 35 33
Selling expenses 10 13
General and administrative expenses 20 28
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Income (loss) from operations 5 (8)
Other expense (2) (10)
-------- --------
Income (loss) before income taxes 3 (18)
Benefit from income taxes 2 2
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Net income (loss) 5 (16)
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SALES. Sales increased to $5.3 million in 1996 from $3.7 million in 1995. Such
increase is primarily a result of efforts by the Company to strengthen its sales
and marketing departments and therefore increase sales.
GROSS PROFIT. Gross profit increased to $1.8 million (35 percent of net sales)
for 1996 from $1.2 million (33 percent of net sales) for 1995. The increase in
gross margin as a percent of net sales for 1996 compared to 1995 is primarily a
result of lower raw material costs, partially offset by increased labor and
depreciation costs. The gross profit as a percent of net sales should increase
as sales increase and the Company is able to spread its fixed costs over greater
sales volume.
By the end of the second quarter of 1996, the Company was substantially
finished with its modifications of its existing processing equipment which
allows it to effectively process larger truck tire chips in order to supplement
its raw material supply. The truck tire chips are less expensive than the
buffings that have been used historically.
SELLING EXPENSES. Selling expenses increased $20,000 to $510,000 (10 percent of
net sales) in 1996 from $490,000 (13 percent of sales) in 1995. The slight
increase is primarily as a result of the addition of sales and marketing
personnel and related expenses in order to help grow sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
remained stable at $1.04 million (20 percent of sales) in 1996 compared to
$1.04 million (28 percent of sales) in 1995. The Company was able to keep its
general and administrative costs flat while growing the business despite
increased costs related to legal, accounting and insurance and reporting and
other requirements which are associated with status as a public company by
focusing cost containment strategies.
OTHER INCOME (EXPENSE). Other expense, net decreased to $115,000 in 1996 from
$341,000 in 1995 primarily as a result of a $200,000 write-down of certain
equipment held for resale in 1995 and slightly lower interest expense in 1996.
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INCOME TAXES. In 1996, the Company recorded a tax benefit of 53 percent of
income before taxes due primarily to the reversal of the valuation allowance
that was placed against the operating loss carryforwards during 1995. The
valuation allowance was reversed based on the Company's analysis of its ability
to generate taxable income in future years. The Company recorded a loss from
operations in 1995 and recorded a federal income tax benefit of approximately
$67,000 (10 percent of income before taxes). The benefit was recorded at an
effective rate of 10 percent as a result of a valuation allowance placed against
operating loss carryforwards.
At December 31, 1996, the Company had available Federal and State of Oregon
operating loss carryforwards of $360,000 and $597,000, respectively, which
expire in the year 2010. In order to realize such benefits before they expire,
the Company would require average annual income of $138,000. Management
believes that, more likely than not, it will attain such levels of income as a
result of unusual losses in prior years, anticipated increases in pretax
accounting income and projected changes in the relationship between pretax
accounting income and taxable income.
NET INCOME (LOSS). Net income increased to $264,000 in 1996 from a loss of
$588,000 in 1995 due to the individual line item changes discussed above.
INFLATION. The Company believes that the impact of inflation on its results of
operations for the years ended December 31, 1996 and 1995 was immaterial.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and capital
expenditures through the private sale of equity securities, cash from
operations, conventional bank financings and leasing arrangements with both
related and unrelated parties. Cash decreased $87,000 during 1996 to $27,000 at
December 31, 1996. This decrease is primarily attributable to $695,000 for the
purchase of property and equipment and $54,000 for payments under long-term
debt, offset by $255,000 provided by operations, $298,000 provided by proceeds
from short and long-term debt and $158,000 provided from the sale of fixed
assets. Working capital at December 31, 1996 was $728,000, including $27,000 of
cash and $852,000 of accounts receivable. The current ratios at December 31,
1996 and 1995 were 1.99:1 and 2.1:1, respectively.
Accounts receivable increased $432,000 to $852,000 at December 31, 1996 from
$420,000 at December 31, 1995. Days sales outstanding (DSO) increased to
approximately 46 days at December 31, 1996 from approximately 35 days at
December 31, 1995 (calculated based on average sales per day in the fourth
quarter of each respective year). The increase in accounts receivable and DSO is
primarily a result of four customers at December 31, 1996 that totaled $451,000.
All four customer balances have been subsequently collected.
The Company expects to spend approximately $1.3 million during 1997 primarily to
purchase and/or refurbish existing rubber processing equipment in order to
increase production capacity. Such amount would be funded primarily through
leases utilizing existing tax credits, with the remainder financed with
conventional long-term debt.
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Notes payable, both current and long-term portions, increased $266,000 to $1.2
million at December 31, 1996 compared to $948,000 at December 31, 1995, as a
result of borrowings related to the plant improvements made by the Company
during 1996.
The Company has a $500,000 operating line-of-credit with a commercial bank which
expires October 15, 1997, with interest at .5 percent over the bank's prime rate
(8.75% at December 31, 1996), collateralized by accounts receivable, inventory
and equipment. The balance outstanding on this line-of-credit was $88,000 at
December 31, 1996.
In conjunction with the creation of Strata, the Company established a $100,000
operating line-of-credit with a commercial bank which expires October 15, 1997,
with interest at 1.25 percent over the bank's prime rate (9.5 percent at
December 31, 1996) and collateralized by the accounts receivable, inventory and
equipment of the Company. There were no amounts outstanding under this line of
credit at December 31, 1996.
Under the terms of these line-of-credit agreements, the Company is required to
maintain the following covenants, to be measured annually at fiscal year end:
Minimum current ratio of 1.25:1
Total liabilities to tangible net worth of no less than 0.75:1
Minimum tangible net worth $3,650,000
At December 31, 1996, the Company was in compliance with all of the above
covenants.
The Company believes its existing cash, cash generated from operations and
available credit facilities will be sufficient to fund its operations for the
next 12 months.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is included on pages F-1 to F-15 of this
report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the registrant required by this item is
included in the Company's definitive proxy statement for its 1997 annual meeting
of shareholders and is incorporated herein by reference.
The names, ages and positions of the Company's executive officers are as
follows:
NAME AGE CURRENT POSITION(S) WITH COMPANY SINCE
- --------------------------------------------------------------------------------
Ronald L. Bogh 53 Chairman of the Board, President and Chief 1996
Executive Officer
Paul M. Gilson 49 Senior Vice President, Chief Operating 1996
Officer, Secretary and Treasurer
Douglas C. Nelson 58 Vice Chairman of the Board, Senior Vice
President and Chief Financial Officer 1996
Ronald L. Bogh founded the Company in 1985 and was named President of the
Company. Mr. Bogh was named the Chairman of the Board in 1995 and Chief
Executive Officer in May 1996. Prior to his acquisition of the Company in 1985,
Mr. Bogh was the Southern U.S. Sales Manager for Cascade Steel in McMinnville,
Oregon. Mr. Bogh earned his B.A. degree from the Oregon College of Education in
1971.
Paul M. Gilson joined the Company in 1990 as the Vice President of Operations
and has served as Secretary and Treasurer since February 1995. In May 1996, Mr.
Gilson was promoted to Senior Vice President, Chief Operating Officer, Secretary
and Treasurer. Prior to joining the Company, he was a commercial account
executive with Hagan Hamilton Insurance in McMinnville, Oregon. Mr. Gilson
attended Portland State University and graduated with a degree in accounting
from Northwest College of Business in Portland, Oregon in 1972.
Douglas C. Nelson joined the Company in 1988 as Executive Vice President,
Finance and Chief Financial Officer. In 1995, he was named Senior Vice
President and Chief Financial Officer. In May 1996, he was named Vice Chairman
of the Board. Mr. Nelson earned his degree in pomology and agronomy from Cal
Poly in 1960.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is included in the Company's definitive
proxy statement for its 1997 annual meeting of shareholders and is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the Company's definitive
proxy statement for its 1997 annual meeting of shareholders and is incorporated
herein by reference.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the Company's definitive
proxy statement for its 1997 annual meeting of shareholders and is incorporated
herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herein:
Exhibit
Number Description
------ -----------
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Reference is made to Exhibits 3.1 and 3.2 (1)
4.2 Form of Common Stock Certificate (1)
4.3 Form of Representative's Warrant (1)
10.1 R-B Rubber Products, Inc. 1995 Stock Option Plan (1)
10.2 Form of Stock Option Agreement (1)
10.3 Commercial loan between the Company and Key Bank, dated September
29, 1995 re: real estate purchase (2)
10.4 Commercial loan between the Company and Key Bank, dated September
1, 1995 re: operating line-of-credit (2)
10.5 Commercial loan between the Company and Key Bank, dated September
1, 1995 re: equipment acquisition line-of-credit (2)
10.6 Commercial loan between the Company and Key Bank, dated July 22,
1996 re: operating line of credit for Strata, Inc. (3)
10.7 Loan modification agreement between the Company and Key Bank of
Oregon, dated October 21, 1996, regarding the conversion of the
Company's $750,000 equipment line of credit, dated September 1,
1995 into a term loan (4)
10.8 Loan modification and/or extension agreement between the Company
and Key Bank of Oregon, dated October 29, 1996, regarding the
Company's $500,000 operating line of credit dated September 1,
1995 (4)
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Exhibit
Number Description
------ -----------
10.9 Loan modification and/or extension agreement between the Company
and Key Bank of Oregon, dated October 29, 1996, regarding the
Company's $100,000 operating line of credit for Strata, Inc.,
dated July 22, 1996 (4)
10.10 Tire-Derived Product Sales Agreement between the Company and
Waste Recovery, Inc., dated September 15, 1995 (2)
11 Computations of per share earnings
21 Subsidiaries of the Registrant
23 Consent of Morrison and Liebswager
27 Financial Data Schedule
(1) Incorporated by reference to Exhibits to Registrant's Registration
Statement on Form SB-2, as amended and filed with the Securities and
Exchange Commission on May 9, 1995 (Commission Registration No. 33-90376).
(2) Incorporated by reference to Exhibits to Registrant's Annual Report on Form
10-KSB for the year ended December 31, 1995, as filed with the Securities
and Exchange Commission on March 30, 1996.
(3) Incorporated by reference to Exhibits to Registrant's Quarterly Report on
Form 10-QSB for the quarter ended June 30, 1996, as filed with the
Securities and Exchange Commission on August 14, 1996.
(4) Incorporated by reference to Exhibits to Registrant's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1996, as filed with the
Securities and Exchange Commission on November 8, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 14, 1997
R-B RUBBER PRODUCTS, INC.
By:/s/RONALD L. BOGH
------------------
Ronald L. Bogh
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in their capacities on the March 14, 1997:
Signature Title
- --------- -----
/s/RONALD L. BOGH Chairman of the Board, President
- ----------------- and Chief Executive Officer
Ronald L. Bogh (Principal Executive Officer)
/s/DOUGLAS C. NELSON Vice Chairman of the Board, Senior Vice
- -------------------- President and Chief Financial Officer
Douglas C. Nelson (Principal Financial and Accounting Officer)
/s/JERRY K. BROWN Director
- -----------------
Jerry K. Brown
/s/EDWARD DERAEVE Director
- -----------------
Edward DeRaeve
/s/JAMES V. REIMANN Director
- -------------------
James V. Reimann
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REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of
R-B Rubber Products, Inc.
McMinnville, Oregon
We have audited the accompanying consolidated balance sheets of R-B Rubber
Products, Inc., as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended December 31, 1996 and 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the 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 the audits 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 financial position of R-B Rubber Products, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles.
Morrison & Liebswager, P.C.
Certified Public Accountants
Dated: February 28, 1997
F-1
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R-B RUBBER PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
December 31,
1996 1995
--------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 26,547 $ 113,293
Accounts receivable, net of allowances of $4,898 and $325 851,976 419,775
Inventories, net 385,242 365,988
Income taxes receivable - 124,565
Prepaid expenses and other 35,132 65,174
Deferred tax asset 161,027 -
----------- -----------
Total Current Assets 1,459,924 1,088,795
Property, Plant and Equipment, net of accumulated
depreciation and valuation allowance of $1,270,240
and $1,287,882 4,291,178 4,148,923
Other Assets 202,019 153,468
----------- -----------
Total Assets $5,953,121 $5,391,186
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable - bank $ 88,000 $ -
Notes payable - other 112,770 -
Accounts payable 344,659 409,299
Payroll and related benefits payable 54,583 30,795
Interest payable 10,485 7,438
Current portion of long-term debt 121,635 67,536
----------- -----------
Total Current Liabilities 732,132 515,068
Long-Term Debt, net of current portion 891,493 880,383
Deferred Income Taxes 224,010 154,494
Commitments and Contingencies
Shareholders' Equity:
Common stock, 20,000,000 shares authorized;
2,172,500 shares issued and outstanding 3,797,442 3,797,442
Additional paid-in capital 282,849 282,849
Retained earnings (deficit) 25,195 (239,050)
----------- -----------
Total Shareholders' Equity 4,105,486 3,841,241
----------- -----------
Total Liabilities and Shareholders' Equity $5,953,121 $5,391,186
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
R-B RUBBER PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
----------- -----------
<S> <C> <C>
Net sales $5,293,835 $3,687,704
Cost of sales 3,455,172 2,436,709
Cost of sales - related party - 35,000
----------- -----------
Gross profit 1,838,663 1,215,995
----------- -----------
Operating expenses:
Selling 509,772 489,550
General and administrative 1,040,979 1,040,198
----------- -----------
1,550,751 1,529,748
----------- -----------
287,912 (313,753)
Other income (expense)
Interest income 807 16,914
Interest expense (116,738) (99,205)
Interest expense - related party - (62,703)
Loss on sale of equipment (3,667) -
Unrealized loss on assets held for sale - (200,000)
Other income, net 4,420 3,671
----------- -----------
(115,178) (341,323)
----------- -----------
Income (loss) before provision for income taxes 172,734 (655,076)
Benefit from income taxes 91,511 67,055
----------- -----------
Net income (loss) $ 264,245 $ (588,021)
----------- -----------
----------- -----------
Net income (loss) per share $ 0.12 $ (0.33)
----------- -----------
----------- -----------
Shares used in per share calculations 2,186,705 1,756,973
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
RB RUBBER PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Retained Total
---------------------- Paid-In Earnings Shareholders'
Shares Amount Capital (Deficit) Equity
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 1,080,000 $ 24,002 $ 282,849 $ 348,971 $ 655,822
Proceeds from issuance of Common
Stock, net of issuance costs of $869,685 1,092,500 3,773,440 - - 3,773,440
Net loss - - - (588,021) (588,021)
---------- ---------- ---------- ----------- -----------
Balance at December 31, 1995 2,172,500 3,797,442 282,849 (239,050) 3,841,241
Net income - - - 264,245 264,245
---------- ---------- ---------- ----------- -----------
Balance at December 31, 1996 2,172,500 3,797,442 282,849 25,195 4,105,486
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
R-B RUBBER PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 264,245 $ (588,021)
Adjustments to reconcile net income (loss) to net cash
flows provided by (used in) operating activities:
Depreciation and amortization 413,337 276,764
Loss on sale/retirement of equipment 3,667 196,329
(Increase) decrease in:
Accounts receivable, net (432,201) (238,483)
Inventories, net (19,254) (180,178)
Income taxes receivable 124,565 (124,565)
Prepaid expenses and other 30,042 (31,916)
Increase (decrease) in:
Income taxes payable - (68,974)
Accounts payable (64,640) 210,143
Payroll and related benefits payable 23,788 (271)
Interest payable 3,047 1,196
Deferred income taxes (91,511) (12,640)
---------- -----------
Net cash provided by (used in) operating activities 255,085 (560,616)
Cash flows from investing activities:
Payments for purchase of property and equipment (694,856) (2,766,363)
Proceeds from sale of fixed assets 158,272 -
Other assets (48,551) (45,538)
---------- -----------
Net cash used in investing activities (585,135) (2,811,901)
Cash flows from financing activities:
Proceeds from (payments on) short-term debt, net 200,770 (100,000)
Proceeds from long-term debt 96,753 1,716,470
Payments on long-term debt (54,219) (1,727,926)
Payments on long-term debt - related party - (779,722)
Proceeds from sale/leaseback transaction - 549,160
Proceeds from the sale of Common Stock, net of
issuance costs of $869,685 - 3,773,440
---------- -----------
Net cash provided by financing activities 243,304 3,431,422
Increase (decrease) in cash and cash equivalents (86,746) 58,905
Cash and cash equivalents:
Beginning of period 113,293 54,388
---------- -----------
End of period $ 26,547 $ 113,293
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
R-B RUBBER PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION. R-B Rubber Products, Inc. (the "Company") was incorporated in
Oregon in September 1986. The Company is a vertically integrated rubber
recycler that manufactures and sells high quality, durable rubber protective
surfaces for a variety of applications within the transportation, agriculture,
sports and fitness, playground and manufacturing industries throughout the U.S.
The Company is currently positioning itself to enter other existing markets as a
provider of raw material for molded rubber products, rubberized running tracks
and tennis courts.
The accompanying consolidated financial statements include the accounts of the
Company and all of its wholly owned and majority owned subsidiaries.
Intercompany transactions and balances have been eliminated in consolidation.
In July, 1996, the Company formed Strata Surfacing, Inc. ("Strata"), a wholly
owned subsidiary, for the purpose of providing flooring systems installation.
ESTIMATES. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Management believes that the estimates used are reasonable.
REVENUE RECOGNITION. Revenue from the sale of products is recognized at time of
shipment to the customer.
CONCENTRATIONS OF RISK AND SIGNIFICANT CUSTOMERS. Approximately 16 percent of
the Company's net sales were to one customer during 1996. Such customer
represented 32 percent of the accounts receivable balance at December 31, 1996.
Three other customers represented approximately 5 percent, 10 percent and 11
percent of the accounts receivable balance at December 31, 1996. Approximately
17 percent of the Company's 1996 sales were derived from sales to ten major
horse trailer manufacturers in the U.S. Should there be a decline in spending
throughout the equine industry, it could have a material affect on the financial
position and future results of operations of the Company. Balances outstanding
at December 31, 1996 for all customers indicated above have been subsequently
collected.
The Company invests its excess cash with high credit quality financial
institutions which bear minimal risk. The Company has not experienced any
losses on its investments.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents consists of cash on hand
and highly liquid investments with maturities at the date of purchase of 90 days
or less. Frequently, the Company has had funds in excess of the FDIC insurance
limits on deposit in an FDIC-insured bank. The bank is large and the exposure
is considered nominal.
F-6
<PAGE>
INVENTORIES. Inventories are stated at lower of cost, using average costs,
which approximates the first-in, first-out (FIFO) method, or market, and include
materials, labor and manufacturing overhead. Unsalable or unusable items are
carried at scrap value and reprocessed.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. Expenditures for maintenance and repairs are charged to expense as
incurred, whereas major improvements are capitalized as additions. Research and
development costs relating to processing and production equipment are
capitalized. Depreciation is provided using the straight-line method over the
estimated useful lives of the applicable assets as follows:
Buildings and Improvements: 30 years
Machinery and Transportation Equipment: 5 - 14 years
Office Furniture and Equipment: 3 - 7 years
RESEARCH AND DEVELOPMENT. Included in general and administrative expense are
expenditures for research and development of $13,403 and $23,087 for the years
ended December 31, 1996 and 1995, respectively.
ADVERTISING COSTS. During 1993, the Accounting Standards Executive Committee
finalized its Statement of Position (SOP) on Reporting Advertising Costs, which
the Company adopted prospectively as required in 1995. The SOP required that
advertising costs be expensed when incurred, with the exception of the costs of
direct-response advertising, which are capitalized and amortized over the period
that benefits are received. Adoption of the new SOP did not have a significant
effect on the Company's financial position or its results of operations. Total
advertising costs expensed were $59,562 and $129,353 for the years ended
December 31, 1996 and 1995, respectively.
NET INCOME PER SHARE. Net income per share is computed using the weighted
average number of common and dilutive common equivalent shares outstanding
during the periods. Fully diluted earnings per share is not significantly
different from primary earnings per share for the periods presented.
2. ACCOUNTS RECEIVABLE
The allowance for doubtful accounts at December 31, 1996 and 1995 was $4,898 and
$325, respectively. Bad debt expense was $15,902 and $9,530 for the years ended
December 31, 1996 and 1995.
3. INVENTORIES
At December 31, inventories by major classification consisted of the following:
1996 1995
--------- ---------
Raw Materials $ 64,080 $ 77,619
Finished Goods 312,962 263,369
Other 8,200 25,000
--------- ---------
$ 385,242 $ 365,988
--------- ---------
--------- ---------
F-7
<PAGE>
4. PROPERTY, PLANT AND EQUIPMENT
At December 31, property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
Land $ 167,750 $ 167,750
Buildings and improvements 682,418 717,959
Machinery and transportation equipment 4,466,875 4,174,725
Office furniture and equipment 126,557 134,698
------------- ------------
5,443,600 5,195,132
Less - accumulated depreciation (1,219,775) (1,087,882)
------------- ------------
4,223,825 4,107,250
Less - valuation allowance on equipment held for resale (50,465) (200,000)
Construction in progress 117,818 241,673
------------- ------------
$ 4,291,178 $ 4,148,923
------------- ------------
------------- ------------
</TABLE>
Depreciation expense was $413,337 and $273,678 for the years ended December 31,
1996 and 1995, respectively. Amounts included above recorded as capital leases
totaled $64,711 and $45,722 at December 31, 1996 and 1995, respectively. Due to
modifications in processing methods, idle processing equipment with an original
book value of $324,905 was written down to its estimated recoverable value of
$124,905 during 1995. A majority of such equipment was sold during 1996 and the
remainder, expected to be sold in 1997, carries a book value of $65,460.
5. CREDIT FACILITIES AND OTHER SHORT-TERM DEBT
The Company has a $500,000 operating line-of-credit with a commercial bank which
expires October 15, 1997, with interest at .5 percent over the bank's prime rate
(8.75% at December 31, 1996), collateralized by accounts receivable, inventory
and equipment. The balance outstanding on this line-of-credit was $88,000 at
December 31, 1996.
In conjunction with the creation of Strata (Note 1), the Company established a
$100,000 operating line-of-credit with a commercial bank which expires October
15, 1997, with interest at 1.25 percent over the bank's prime rate (9.5 percent
at December 31, 1996) and collateralized by the accounts receivable, inventory
and equipment of the Company. There were no amounts outstanding under this line
of credit at December 31, 1996.
Under the terms of these line-of-credit agreements, the Company is required to
maintain the following covenants, to be measured annually at fiscal year end:
Minimum current ratio of 1.25:1
Total liabilities to tangible net worth of no less than 0.75:1
Minimum tangible net worth $3,650,000
At December 31, 1996, the Company was in compliance with all of the above
covenants.
The Company also has a $112,770 loan against the cash surrender value of life
insurance at 7.41 percent interest.
F-8
<PAGE>
6. LONG-TERM DEBT
Obligations under long-term debt arrangements at December 31, were as follows:
1996 1995
-------- --------
Bank term note (converted equipment line-of-credit) at
8.98 percent and 8.75 percent at December 31, 1996
and 1995, respectively, payable in 59 payments of
$8,555, including interest, through September 2001,
collateralized by accounts receivable, inventory and
equipment $ 401,675 $315,898
Real estate mortgage at 9.24 percent interest, payable in
monthly amounts of $6,895, including interest, through
October 5, 2005, collateralized by land and buildings 547,990 577,699
Capital leases payable $2,011 and $1,469 monthly at
December 31, 1996 and 1995, respectively, through
November 12, 2000, collateralized by equipment 63,463 54,322
---------- --------
1,013,128 947,919
Less - current portion 121,635 67,536
---------- --------
Long-term debt, net of current portion $ 891,493 $880,383
---------- --------
---------- --------
Principal payments under long-term debt obligations for the next five years and
thereafter at December 31, 1996 are as follows:
1997 $ 121,635
1998 129,856
1999 139,766
2000 142,809
2001 130,255
Thereafter 348,807
----------
$1,013,128
----------
----------
7. OPERATING LEASES
During 1995, the Company entered into a tax credit sale-leaseback. The Company
sold certain equipment which qualifies for State of Oregon Business Energy Tax
Credits to a commercial bank and leased the property back net of related
credits. The Company received $549,160 proceeds from the sale. It is leasing the
property back for 84 monthly payments of $6,330 each beginning December 10, 1995
and terminating November 10, 2002. The lease is categorized as an operating
lease. The Company has an option to reacquire the property at the termination of
the lease for a payment in the amount of $176,778, the estimated fair market
value.
The Company also leases certain vehicles and equipment under operating leases
expiring in various years through 1998.
F-9
<PAGE>
Minimum lease payments for the next five years and thereafter under non-
cancelable operating leases having remaining terms in excess of one year at
December 31, 1996 are as follows:
1997 $ 89,598
1998 81,216
1999 75,960
2000 75,960
2001 75,960
Thereafter 69,630
--------
$468,324
--------
--------
Total rental expense related to operating leases was $96,086 and $23,022 for the
years ended December 31, 1996 and 1995, respectively.
8. INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES. This statement requires that
deferred taxes be established for all temporary differences between the book and
tax basis of assets and liabilities.
The provision for (benefit from) income taxes is as follows:
December 31, 1996 1995
- --------------------- ---------- ----------
Current:
Federal $(161,027) $ (67,055)
State - -
---------- ----------
(161,027) (67,055)
Deferred:
Federal 69,516 -
State - -
---------- ----------
69,516 -
---------- ----------
$ (91,511) $ (67,055)
---------- ----------
---------- ----------
A reconciliation between the statutory federal income tax rate and the effective
federal income tax rate is as follows:
December 31, 1996 1995
- ---------------------------------------------- ------- --------
Statutory federal income tax rate 34.0% 34.0%
State taxes, net of federal income tax benefit 6.6 6.6
Valuation allowance (93.5) (16.7)
Effect of graduated federal statutory rate - (34.1)
------- --------
Effective tax rate (52.9)% (10.2)%
------- --------
------- --------
F-10
<PAGE>
At December 31, 1996, the Company recognized current tax benefits to the extent
of tax attribute carryovers available. The Company has available at December
31, 1996, the following unused operating loss carry forwards that may be applied
against future taxable income and that expire 2010:
Federal $ 360,223
State of Oregon $ 596,657
The Company also has Federal General Business Credit carryovers totaling $20,779
which begin to expire in 2009.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Total deferred tax
assets and liabilities at December 31, 1996 were $161,029 and $224,010,
respectively. The valuation allowance for recognition of deferred tax benefits
decreased from $109,126 to $0. Individually significant components of the
Company's deferred tax assets and liabilities at December 31, 1996 were as
follows:
Loss and credit carryforwards $ 143,255
Idle asset valuation allowance 17,158
Tax depreciation greater than book depreciation (109,053)
Capitalized research and development expenses (114,957)
9. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
December 31, 1996 1995
- --------------------------------------------- -------- -------
Cash paid during the period for interest $134,308 158,940
Cash paid during the period for income taxes -- 126,484
Equipment acquired under capital lease 22,675 45,722
10. COMMITMENTS AND CONTINGENCIES
During 1995, the Company entered into an agreement to purchase tire derived
rubber products in chip form. The commitment calls for minimum purchases of 400
standard tons of product per month beginning February 1, 1996 through September
30, 1998. The minimum committed purchase totals $14,400 monthly. Total
purchases under this agreement amounted to $101,385 during the year ended
December 31, 1996.
The Company is a defendant in a lawsuit filed by one of its former employees.
Because of the recent nature of this action, the Company is unable to assess the
probable outcome. However, the Company believes the suit is without merit and
is vigorously defending its position, and does not believe it will have a
material effect on the Company's financial position, results of operations or
cash flow.
F-11
<PAGE>
11. SHAREHOLDERS' EQUITY
COMMON STOCK SPLIT. In February 1995, in anticipation of the Company's initial
public offering of Common Stock, the Company amended it Articles of
Incorporation to increase the authorized limits of its no par Common Stock to
20,000,000 shares. The Company's no par Common Stock was split at a rate of 360-
for-1 on February 3, 1995. All references in the accompanying financial
statements to the number of shares of Common Stock have been retroactively
restated to reflect such stock split.
INITIAL PUBLIC OFFERING. During May and June of 1995 the Company received net
proceeds in the amount of $3,773,440 from its initial public offering. A total
1,092,500 shares were issued at $4.25 per share. Total offering costs were
$869,685.
WARRANTS. At December 31, 1995 the Company had outstanding warrants to purchase
95,000 shares of the Company's Common Stock at $5.10 per share which expire May
9, 2000.
STOCK OPTION PLAN. In March 1995, the Company adopted its 1995 stock option
plan (the "1995 Plan"). The 1995 Plan provides for the issuance of incentive
stock options to employees of the Company and non-statutory stock options to
employees, directors and consultants of the Company. Options granted generally
vest over a three-year period, but may vest over a different period at the
discretion of the Plan Administrator. Options granted under the 1995 Plan are
typically exercisable for a period of 7 years from the date of grant. The
exercise price of options granted under the 1995 Plan must be equal to or
greater than the fair market value of the Company's Common Stock on the date of
grant for incentive stock option under Section 422 of the Code and not less than
85 percent of the fair market value on the date of grant for non-statutory
stock options.
Activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Shares Exercise Total
Available Subject to Price Per Exercise
for Grant Options Share Price
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Balances, December 31, 1994 - - $ - $ -
Shares reserved 150,000 - - -
Options granted (35,000) 35,000 3.00 105,000
Options canceled - - - -
Options exercised - - - -
--------- ---------- --------- ----------
Balances, December 31, 1995 115,000 35,000 3.00 105,000
Options granted (121,500) 121,500 1.80 218,250
Options canceled 53,000 (53,000) 3.02 (160,125)
Options exercised - - - -
--------- ---------- --------- ----------
Balances, December 31, 1996 46,500 103,500 $1.58 $ 163,125
--------- ---------- --------- ----------
</TABLE>
At December 31, 1996, the Company had 150,000 shares of Common Stock reserved
for future issuance under the 1995 Plan and options to purchase 53,500 shares of
the Company's Common Stock were exercisable. The exercise price of all options
granted was equal to the market price of the stock on the grant date.
F-12
<PAGE>
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123. During 1995, the Financial
Accounting Standards Board issued SFAS 123 which defines a fair value based
method of accounting for an employee stock option and similar equity instrument
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method of
accounting prescribed by APB 25. Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in SFAS 123 had been adopted.
The Company has elected to account for its stock-based compensation plans under
APB 25; however, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1996 and 1995 using the Black-Scholes
option pricing model as prescribed by SFAS 123 using the following weighted
average assumptions for grants:
For the Year Ended December 31, 1996 1995
- ------------------------------- ---------- ----------
Risk-free interest rate 6% 6%
Expected dividend yield 0% 0%
Expected lives 1.77 years 1.34 years
Expected volatility 33% 33%
Cost charged to operations was $0 in 1996 and 1995 for stock based employer
compensation awards. Stock options awarded December 1, 1995 (35,000 shares) at
$3.00 and April 24, 1996 (18,000 shares) were canceled. New grants totaling
43,000 shares replaced these awards at an average option price of $1.55.
Using the Black-Scholes methodology, the total value of options granted during
1996 and 1995 was $17,487 and $18,050, respectively, which would be amortized on
a pro forma basis over the vesting period of the options. The weighted average
fair value of options granted during 1996 and 1995 was $2.13 and $3.52,
respectively. If the Company had accounted for its stock-based compensation
plans in accordance with SFAS 123, the Company's net income and net income per
share would approximate the pro forma disclosures below:
For the Year Ended December 31, 1996 1995
- ------------------------------- ---------------------- ----------------------
As Pro As Pro
Reported Forma Reported Forma
---------- ---------- ---------- ----------
Net income (loss) $264,245 $253,442 $(588,021) $(595,757)
Net income (loss) per share $ 0.12 $ 0.12 $ (0.33) $ (0.34)
F-13
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------------- ----------------------------------
Weighted
Average Weighted Number of Weighted
Range of Number Remaining Average Shares Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/96 Life Price at 12/31/96 Price
- -------------- --------------- ------------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
$ 1.50 50,500 2.13 $ 1.50 22,500 $ 1.50
1.625 43,000 1.19 1.625 31,000 1.625
1.75 10,000 3.00 1.75 -- --
- -------------- --------------- ------------- ----------- ------------- ------------
$1.50 - 1.75 103,500 1.82 $ 1.58 53,500 $ 1.57
- -------------- --------------- ------------- ----------- ------------- ------------
- -------------- --------------- ------------- ----------- ------------- ------------
</TABLE>
12. RELATED PARTY TRANSACTIONS
PURCHASE OF FACILITY. In September 1995, the Company fulfilled its obligation
to purchase its facility, consisting of a building with approximately 24,000
square feet of administrative and production space and approximately four acres
of land (the "Facility"). The Facility was purchased from John G. Nelson and
Mary H. Nelson Trust, of which Mr. Douglas C. Nelson, an executive officer and
Director of the Company, is a beneficiary, and the Trustee of which is James
Nelson, who is related to Douglas C. Nelson, for $581,500 plus closing costs.
Prior to purchasing such Facility, the Company leased the Facility from the same
for a monthly rental of $5,555. Rental expense associated with this lease
totaled zero and $49,995 for the years ended December 31, 1996 and 1995.
PURCHASE OF EQUIPMENT. In June 1995, the Company purchased certain processing
equipment from N & B Enterprises, a corporation owned in equal proportions by
Messrs. Bogh and Nelson, both executive officers and Directors of the Company,
for $200,000. Prior to purchasing the processing equipment, the Company leased
such equipment from the same for a monthly rental of $7,000. Rental expense
associated with this lease totaled zero and $35,000 for the years ended December
31, 1996 and 1995.
NOTES PAYABLE TO SHAREHOLDERS. In 1989, the Company borrowed $213,972 from Mr.
Nelson, an executive officer and Director of the Company, pursuant to a note due
January 1, 1996 for the purchase of certain processing equipment. The Company
retired such note, along with accrued interest, in May, 1995. Such note bore
interest at a market rate and totaled zero and $12,708 for the years ended
December 31, 1996 and 1995, respectively.
The Company also had a demand note due to JVR Pension Trust, of which Mr.
Reimann, a director of the Company, is the trustee, in the amount of $45,000
for general corporate purposes prior to the Company's initial public offering.
The note, and accrued interest were paid in full in May 1995 with proceeds from
the Company's initial public offering. Interest expense totaled zero and $2,257
in the years ended December 31, 1996 and 1995, respectively.
F-14
<PAGE>
PLANT IMPROVEMENTS. During 1996 and 1995 the Company paid $162,582 and $395,254
to a contracting firm owned by Mr. DeRaeve, a Director of the Company, for
capital improvements to its plant.
LEGAL SERVICES. During 1996, the Company paid Mr. Brown, a Director of the
Company, $3,207 for legal services provided.
All related party transactions were conducted at arms-length rates and
conditions.
F-15
<PAGE>
EXHIBIT 11
R-B RUBBER PRODUCTS, INC.
CALCULATIONS OF NET INCOME PER SHARE
Year Ended Decmeber 31,
-------------------------------------------------
1996 1995
------------------------ ------------------------
Primary Fully Diluted Primary Fully Diluted
------------------------ ------------------------
Weighted Average Shares
Outstanding for the Period 2,172,500 2,172,500 1,756,973 1,756,973
Dilutive Common Stock
Options Using the Treasury
Stock Method 14,205 14,205 - -
------------------------ ------------------------
Total Shares Used for Per
Share Calculations 2,186,705 2,186,705 1,756,973 1,756,973
------------------------ ------------------------
------------------------ ------------------------
Net Income (Loss) 264,245 264,245 (588,021) (588,021)
------------------------ ------------------------
------------------------ ------------------------
Net Income (Loss) Per Share $ 0.12 $ 0.12 $ (0.33) $ (0.33)
------------------------ ------------------------
------------------------ ------------------------
<PAGE>
EXHIBIT 21
Subsidiaries of Registrant
1. Strata Surfacing, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation of our reports dated February 28, 1997, included
in this Form 10-KSB into the Company's previously filed Registration Statement
No. 33-90376 on Form S-8.
Morrison & Liebswager, P.C.
March 17, 1997
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 26,547
<SECURITIES> 0
<RECEIVABLES> 851,976
<ALLOWANCES> 4,898
<INVENTORY> 385,242
<CURRENT-ASSETS> 1,459,924
<PP&E> 4,291,178
<DEPRECIATION> 1,270,240
<TOTAL-ASSETS> 5,953,121
<CURRENT-LIABILITIES> 732,132
<BONDS> 891,493
0
0
<COMMON> 3,797,442
<OTHER-SE> 308,044
<TOTAL-LIABILITY-AND-EQUITY> 5,953,121
<SALES> 5,293,835
<TOTAL-REVENUES> 5,293,835
<CGS> 3,455,172
<TOTAL-COSTS> 3,455,172
<OTHER-EXPENSES> 1,550,751
<LOSS-PROVISION> 15,902
<INTEREST-EXPENSE> 116,738
<INCOME-PRETAX> 172,734
<INCOME-TAX> (91,511)
<INCOME-CONTINUING> 264,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264,245
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
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