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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-25974
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R-B RUBBER PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
Oregon 93-0967413
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
904 E. 10th Avenue, McMinnville, Oregon 97128
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 503-472-4691
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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
preceding 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock without par value 2,172,500
(Class) (Outstanding at May 1, 1997)
Transitional Small Business Disclosure Format (check one): Yes No X
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R-B RUBBER PRODUCTS, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Report of Independent Accountants 2
Balance Sheets - March 31, 1997 and December 31, 1996 3
Statements of Operations - Quarters Ended March 31, 1997 4
and 1996
Statements of Cash Flows - Quarters Ended March 31, 1997 5
and 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation
7
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
R-B Rubber Products, Inc.
We have made a review of the condensed consolidated balance sheets of R-B Rubber
Products, Inc. as of March 31, 1997 and December 31, 1996, the related condensed
consolidated statements of operations for the three month periods ended March
31, 1997 and 1996, and the related condensed consolidated statements of cash
flows for the three month periods ended March 31, 1997 and 1996, in accordance
with standards established by the American Institute of Certified Public
Accountants.
A review of the interim financial information consists principally of obtaining
an understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data, and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
Morrison & Liebswager, P.C.
King City, Oregon
May 1, 1997
2
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R-B RUBBER PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 97,524 $ 26,547
Accounts receivable, net of allowances of $4,804 and $4,898 613,384 851,976
Inventories, net 511,706 385,242
Prepaid expenses and other 8,400 35,132
Deferred tax asset 125,060 161,027
------------- -------------
Total Current Assets 1,356,074 1,459,924
Property, Plant and Equipment, net of accumulated
depreciation and valuation allowance of $1,355,178
and $1,270,240 4,379,043 4,291,178
Other Assets 228,048 202,019
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Total Assets $ 5,963,165 $ 5,953,121
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable - bank $ - $ 88,000
Notes payable - other 112,770 112,770
Accounts payable 305,669 344,659
Payroll and related benefits payable 96,165 54,583
Interest payable - 10,485
Income taxes payable 29,301 -
Current portion of long-term debt 124,967 121,635
------------- -------------
Total Current Liabilities 668,872 732,132
Long-Term Debt, net of current portion 849,273 891,493
Deferred Income Taxes 219,282 224,010
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 145,447 25,195
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Total Shareholders' Equity 4,225,738 4,105,486
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Total Liabilities and Shareholders' Equity $ 5,963,165 $ 5,953,121
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</TABLE>
The accompanying notes are an integral part of these statements.
3
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R-B RUBBER PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
1997 1996
------------ ------------
Net sales $ 1,626,895 $ 1,098,442
Cost of sales 973,521 674,828
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Gross profit 653,374 423,614
Operating expenses:
Selling 144,996 144,584
General and administrative 304,811 249,787
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449,807 394,371
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Income from operations 203,567 29,243
Other income (expense)
Interest expense (26,961) (25,127)
Gain on sale of assets 555
Other income, net 3,630 -
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(22,776) (25,127)
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Income before provision for income taxes 180,791 4,116
Provision for income taxes 60,540 -
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Net income $ 120,251 $ 4,116
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Net income per share $ 0.05 $ 0.00
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Shares used in per share calculations 2,221,025 2,173,995
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The accompanying notes are an integral part of these statements.
4
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R-B RUBBER PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 120,251 $ 4,116
Adjustments to reconcile net income to net cash
flows provided by (used in) operating activities:
Depreciation and amortization 135,403 91,394
Gain on sale of equipment (555) -
Deferred income taxes 31,239 -
(Increase) decrease in:
Accounts receivable, net 238,592 2,406
Inventories, net (126,464) (148,133)
Prepaid expenses and other 26,732 5,835
Increase (decrease) in:
Income taxes payable 29,301 -
Accounts payable (38,990) (224,560)
Payroll and related benefits payable 41,582 16,622
Interest payable (10,485) (7,438)
------------ ------------
Net cash provided by (used in) operating activities 446,606 (259,758)
Cash flows from investing activities:
Payments for purchase of property and equipment (223,267) (131,871)
Proceeds from sale of fixed assets 555 -
Other assets (26,029) (15,323)
------------ ------------
Net cash used in investing activities (248,741) (147,194)
Cash flows from financing activities:
Proceeds from (payments on) short-term debt, net (88,000) 309,000
Proceeds from long-term debt - -
Payments on long-term debt (38,888) (13,493)
------------ ------------
Net cash provided by (used in) financing activities (126,888) 295,507
Increase (decrease) in cash and cash equivalents 70,977 (111,445)
Cash and cash equivalents:
Beginning of period 26,547 113,293
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End of period $ 97,524 $ 1,848
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</TABLE>
The accompanying notes are an integral part of these statements.
5
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R-B RUBBER PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The financial information included herein for the quarterly periods ended March
31, 1997 and 1996 and the financial information as of March 31, 1997 is
unaudited; however, such information reflects all adjustments consisting only of
normal recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the financial position, results of operations and
cash flows for the interim periods. The interim financial statements should be
read in conjunction with the financial statements and the notes thereto included
in the Company's 1996 Annual Report to Shareholders on Form 10-KSB. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the full year.
NOTE 2. 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. In the first quarter of 1996, the Company revised its
estimates of average costs for valuing inventory. Such revision was accounted
for prospectively. The effect of the revision was to increase inventory and
decrease cost of goods sold by an amount that was not material to the Company's
results of operations.
March 31, 1997 December 31, 1996
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Raw materials $ 70,937 $ 64,080
Finished goods 435,769 312,962
Other 5,000 8,200
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$ 511,706 $ 385,242
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NOTE 3. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement 128,
EARNINGS PER SHARE ("SFAS 128"), superseding Opinion 15. SFAS 128 is required
to be adopted for periods ending after December 15, 1997. Pro forma effects of
applying SFAS 128 are as follows:
Three Months Ended: March 31, 1997 March 31, 1996
- ------------------------------- -------------- --------------
Primary EPS as reported $ 0.05 $ 0.00
Effect of SFAS 128 0.01 0.00
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Basic EPS as restated $ 0.06 $ 0.00
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Fully diluted EPS as reported $ 0.05 $ 0.00
Effect of SFAS 128 0.00 0.00
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Diluted EPS as restated $ 0.05 $ 0.00
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NOTE 4. 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.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
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. 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, including, but not limited to, the report of Form 10-KSB for the year
ended December 31, 1996.
RESULTS OF OPERATIONS
Net sales increased 48 percent to $1.6 million for the first quarter of 1997
from $1.1 million for the first quarter of 1996. The increase was primarily
attributable to efforts by the Company to strengthen its sales and marketing
departments and therefore increase sales.
Gross profit increased to $653,000 (40.2 percent of net sales) for the first
quarter of 1997 from $424,000 (38.6 percent of net sales) for the first quarter
of 1996. The increase as a percentage of sales is primarily a result of
decreased raw material costs, partially offset by increased labor and
depreciation costs. The Company has been able to lower its raw material cost by
modifying its existing processing equipment in order to effectively process
larger truck tire chips and therefore supplement its raw material supply with
such material. The truck tire chips are less expensive than the buffings that
have been used historically. The Company is currently researching additional
processing improvements that would allow it to process automobile tire chips,
helping to ensure an adequate supply of such lower cost raw material in the
future.
Selling expenses remained stable at $145,000 for the first quarter of 1997 (8.9
percent of net sales) compared to $145,000 (13.2 percent of net sales) for the
first quarter of 1996. The Company was able to increase sales while keeping
selling expenses constant by offsetting increased selling personnel costs with
cost containment efforts.
General and administrative expenses increased to $305,000 (18.7 percent of net
sales) for the first quarter of 1997 from $250,000 (22.7 percent of net sales)
for the first quarter of 1996, primarily as a result of growth of the Company,
partially offset by cost containment efforts.
Income tax expense, totaling $61,000 for the three month period ended March 31,
1997, was recorded at an estimated effective rate of approximately 33.5 percent.
Net income increased to $120,000 (7.4 percent of net sales) for the first
quarter of 1997 from $4,000 (0.3 percent of net sales) for the first quarter of
1996, as a result of the individual line items changes discussed above.
7
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 working capital was $687,000, including $98,000 of cash and
cash equivalents. In the first quarter of 1997, working capital decreased by
$41,000 and the current ratio remained constant at 2.0:1.
Cash and cash equivalents increased $71,000 primarily due to $447,000 provided
by operations, offset by $223,000 for the purchase of property and equipment and
$127,000 for payments on borrowings under short and long-term debt.
Accounts receivable decreased $239,000 to $613,000 at March 31, 1997 compared to
$852,000 at December 31, 1996. Days sales outstanding decreased to 34 days at
March 31, 1997 compared to 46 days at December 31, 1996. The decrease in the
accounts receivable balance and in days sales outstanding relate primarily to
four accounts at December 31, 1996 totaling $451,000 that were collected in the
first quarter of 1997, offset by increased sales in the first quarter of 1997
compared to the first quarter of 1996.
Inventories increased $126,000 to $512,000 at March 31, 1997 from $385,000 at
December 31, 1996 due primarily to the building of finished goods inventory in
order to help ensure adequate quantities are available to meet anticipated
demand. Inventory turned approximately 9 times on an annualized basis for the
first quarter of 1997 and for all of 1996.
Capital expenditures of $223,000 during the first quarter of 1997 primarily
resulted from the refurbishing of existing rubber processing equipment to
increase production capacity. Total capital expenditures are expected to be
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.
8
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on April 23,
1997, at which the following action was taken:
1. The shareholders elected the five nominees for Director to the Board of
Directors of the Company. The five Directors elected, along with the voting
results are as follows:
Name No. of Shares Voting For No. of Shares Withheld Voting
- ---- ------------------------ -----------------------------
Ronald L. Bogh 1,282,293 200
Jerry K. Brown 1,282,293 200
Edward DeRaeve 1,282,293 200
Douglas C. Nelson 1,282,293 200
James V. Reimann 1,282,293 200
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as a part of this report are listed below.
Exhibit No.
- -----------
11 Calculations of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the quarter ended March
31, 1997.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 1, 1997 R-B RUBBER PRODUCTS, INC.
By: /s/RONALD L. BOGH
-----------------------------------
Ronald L. Bogh
Chairman of the Board and President
(Principal Executive Officer)
By: /s/ DOUGLAS C. NELSON
-----------------------------------
Douglas C. Nelson
Director, Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
10
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EXHIBIT 11
R-B RUBBER PRODUCTS, INC.
CALCULATIONS OF NET INCOME PER SHARE
Three Months Ended March 31,
--------------------------------------------------
1997 1996
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Primary Fully Diluted Primary Fully Diluted
------------------------ ------------------------
Weighted Average Shares
Outstanding for the Period 2,172,500 2,172,500 2,172,500 2,172,500
Dilutive Common Stock
Options Using the Treasury
Stock Method 48,525 48,525 1,495 1,495
------------------------ ------------------------
Total Shares Used for Per
Share Calculations 2,221,025 2,221,025 2,173,995 2,173,995
------------------------ ------------------------
------------------------ ------------------------
Net Income (Loss) 120,251 120,251 4,116 4,116
------------------------ ------------------------
------------------------ ------------------------
Net Income (Loss) Per Share $ 0.05 $ 0.05 $ 0.00 $ 0.00
------------------------ ------------------------
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 97,524
<SECURITIES> 0
<RECEIVABLES> 613,384
<ALLOWANCES> 4,804
<INVENTORY> 511,706
<CURRENT-ASSETS> 1,356,074
<PP&E> 4,379,043
<DEPRECIATION> 1,355,178
<TOTAL-ASSETS> 5,963,165
<CURRENT-LIABILITIES> 668,872
<BONDS> 962,043
0
0
<COMMON> 3,797,442
<OTHER-SE> 428,296
<TOTAL-LIABILITY-AND-EQUITY> 5,963,165
<SALES> 1,626,895
<TOTAL-REVENUES> 1,626,895
<CGS> 973,521
<TOTAL-COSTS> 973,521
<OTHER-EXPENSES> 449,807
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,961
<INCOME-PRETAX> 180,791
<INCOME-TAX> 60,540
<INCOME-CONTINUING> 120,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120,251
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
