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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from _____ to _____
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 Identification No.)
incorporation or organization)
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 2,239,167
(Class) (Outstanding at May 8, 1998)
Transitional Small Business Disclosure Format (check one): Yes No X
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R-B RUBBER PRODUCTS, INC.
FORM 10-QSB
INDEX
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<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1. Financial Statements
Report of Independent Accountants 2
Balance Sheets - March 31, 1998 and December 31, 1997 3
Statements of Operations - Three Months Ended March 31,
1998 and 1997 4
Statements of Cash Flows - Three Months Ended March 31,
1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
<CAPTION>
PART II - OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
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 balance sheets of R-B Rubber Products,
Inc. as of March 31, 1998 and December 31, 1997, the related condensed
statements of operations for the three month periods ended March 31, 1998 and
1997, and the related condensed statements of cash flows for the three month
periods ended March 31, 1998 and 1997, 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 financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
Morrison & Liebswager, P.C.
King City, Oregon
May 11, 1998
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R-B RUBBER PRODUCTS, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 274,447 $ 291,990
Accounts receivable, net of allowances of
$6,191 and $6,216 887,244 910,480
Other receivable 50,000 -
Inventories, net 919,671 692,073
Prepaid expenses and other 21,457 37,738
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Total Current Assets 2,152,819 1,932,281
Property, Plant and Equipment, net of accumulated
depreciation and valuation allowance of
$1,854,323 and $1,727,139 4,436,729 4,066,562
Other Assets 274,635 276,693
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Total Assets $6,864,183 $6,275,536
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable - bank $ 357,274 $ -
Notes payable - other 5,145 -
Accounts payable 460,533 408,573
Payroll and related benefits payable 74,884 68,747
Income taxes payable 73,636 19,180
Current portion of long-term debt 136,174 134,507
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Total Current Liabilities 1,107,646 631,007
Long-Term Debt, net of current portion 737,713 772,866
Deferred Income Taxes 252,319 238,034
Shareholders' Equity:
Common stock, no par value, 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 686,214 553,338
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Total Shareholders' Equity 4,766,505 4,633,629
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Total Liabilities and Shareholders' Equity $6,864,183 $6,275,536
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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.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
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<S> <C> <C>
Net sales $1,925,690 $1,626,895
Cost of sales 1,165,450 973,521
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Gross profit 760,240 653,374
Operating expenses:
Selling 229,905 144,996
General and administrative 322,330 304,811
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552,235 449,807
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Income from operations 208,005 203,567
Other income (expense)
Interest income 2,721 -
Interest expense (24,219) (26,961)
Gain on sale of assets - 555
Other income, net 13,511 3,630
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(7,987) (22,776)
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Income before provision for income taxes 200,018 180,791
Provision for income taxes 67,142 60,540
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Net income $ 132,876 $ 120,251
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Basic net income per share $ 0.06 $ 0.06
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Diluted net income per share $ 0.06 $ 0.05
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</TABLE>
The accompanying notes are an integral part of these statements.
4
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R-B RUBBER PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net Income $ 132,876 $ 120,251
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation and amortization 127,185 135,403
Gain on sale of equipment - (555)
Deferred income taxes 14,285 31,239
(Increase) decrease in:
Accounts receivable, net 23,236 238,592
Other receivables, net (50,000)
Inventories, net (227,598) (126,464)
Prepaid expenses and other 16,281 26,732
Increase (decrease) in:
Income taxes payable 54,456 29,301
Accounts payable 56,323 (38,990)
Payroll and related benefits payable 6,137 41,582
Interest payable (4,363) (10,485)
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Net cash provided by operating activities 148,818 446,606
Cash flows from investing activities:
Payments for purchase of property and equipment (497,352) (223,267)
Proceeds from sale of fixed assets - 555
Other assets 2,058 (26,029)
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Net cash used in investing activities (495,294) (248,741)
Cash flows from financing activities:
Proceeds from (payments on) short-term debt, net 362,419 (88,000)
Proceeds from long-term debt - -
Payments on long-term debt (33,486) (38,888)
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Net cash provided by (used in)
financing activities 328,933 (126,888)
Increase (decrease) in cash and cash equivalents (17,543) 70,977
Cash and cash equivalents:
Beginning of period 291,990 26,547
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End of period $ 274,447 $ 97,524
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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, 1998 and 1997 and the financial information as of March 31, 1998 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 1997 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.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
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<S> <C> <C>
Raw materials $ 41,368 $ 97,325
Finished goods 836,117 575,435
Other 42,186 19,313
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$919,671 $692,073
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</TABLE>
NOTE 3. EARNINGS PER SHARE
Beginning December 31, 1997, basic earnings per share (EPS) and diluted EPS are
computed using the methods prescribed by Statement of Financial Accounting
Standard No. 128, EARNINGS PER SHARE (SFAS 128). Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Prior period amounts have been
restated to conform with the presentation requirements of SFAS 128.
Following is a reconciliation of basic EPS and diluted EPS:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998 1997
- ------------------------------ -------------------------------- ---------------------------------
Per Per
Share Share
BASIC EPS Income Shares Amount Income Shares Amount
- --------- -------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) available to
Common Shareholders $132,876 2,172,500 $0.06 $120,251 2,172,500 $0.06
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DILUTED EPS
- -----------
Effect of dilutive stock options - 46,929 - 48,525
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Income (loss) available to
Common Shareholders $132,876 2,219,429 $0.06 $120,251 2,221,025 $0.05
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</TABLE>
6
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NOTE 4. SUBSEQUENT EVENT - ACQUISITION
On April 1, 1998, the Company announced the acquisition of substantially all
of the assets of certain operations of Iowa Mat Company for $600,000 in cash
and 66,667 shares of the Company's Common Stock. In addition, based upon
achieving certain revenue goals from Iowa Mat Company products, the Company
is required to issue an additional $200,000 of the Company's Common Stock to
the sellers of Iowa Mat Company based upon the then current market price of
the Company's Common Stock. A majority of the $600,000 cash payment was
financed with the Company's existing bank facilities.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-QSB, 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 or
gross margins will improve. In addition, there are other factors that could
cause actual results to differ materially, including competitive pressures,
increased demand for, or diminished supply of, the Company's raw materials,
unanticipated difficulties in integrating acquired technologies or businesses
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, 1997. The Company wished to caution the
reader that these forward looking statements, such as the statements concerning
new product introductions and future tire chip processing capabilities, are only
predictions and are not statements of historical fact.
RESULTS OF OPERATIONS
Net sales increased 18 percent to $1.9 million for the first quarter of 1998
from $1.6 million for the first quarter of 1997. The increase was primarily
attributable to the Company's continued expansion in its primary markets.
Gross profit increased 16 percent to $760,000 (39.5 percent of net sales) for
the first quarter of 1998 from $653,000 (40.2 percent of net sales) for the
first quarter of 1997. The slight decrease as a percentage of sales is
primarily a result of increased raw material costs due to an inadequate supply
of truck tire chips, which necessitated supplementing raw materials with
buffings, offset by efficiencies gained with increased sales. The Company is
currently working to replace its supplies of truck tire chips, but anticipates
that its raw material costs will continue to be higher compared to prior periods
until that replacement is completed.
Selling expenses increased 59 percent to $230,000 for the first quarter of 1998
(11.9 percent of net sales) compared to $145,000 (8.9 percent of net sales) for
the first quarter of 1997. The increase is primarily a result of increased
spending on product promotion and advertising. In addition, the Company has
increased sales personnel.
General and administrative expenses increased 6 percent to $322,000 (16.7
percent of net sales) for the first quarter of 1998 from $305,000 (18.7 percent
of net sales) for the first
7
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quarter of 1997, primarily as a result of continued growth of the Company.
The decrease as a percentage of net sales is a result of efficiencies gained
with a larger sales base.
Income tax expense, totaling $67,000 for the first quarter of 1998, was recorded
at an estimated effective rate of approximately 33.6 percent, compared to
$61,000 in the first quarter of 1997 at an effective rate of approximately 33.5
percent.
Net income increased to $133,000 (6.9 percent of net sales) for the first
quarter of 1998 from $120,000 (7.4 percent of net sales) for the first quarter
of 1997, as a result of the individual line item changes discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998 working capital was $1.0 million, including $274,000 of cash
and cash equivalents. In the first quarter of 1998, working capital decreased
by $256,000 and the current ratio decreased to 1.9:1 from 3.1:1 at December 31,
1997.
Cash and cash equivalents decreased $18,000 primarily due to $149,000 provided
by operations and $329,000 provided by net short-term borrowings, offset by
$495,000 used for the purchase of property and equipment.
Accounts receivable decreased $23,000 to $887,000 at March 31, 1998 compared to
$910,000 at December 31, 1997. Days sales outstanding increased to 42 days at
March 31, 1998 compared to 37 days at December 31, 1997. The increase in days
sales outstanding is primarily a result of increased sales late in the quarter.
One account, totaling $170,000 at March 31, 1998, has been subsequently
collected.
Inventories increased $228,000 to $920,000 at March 31, 1998 from $692,000 at
December 31, 1997 due primarily to building of finished goods inventory in order
to help ensure adequate quantities are available to meet anticipated demand.
Inventory turned approximately six times on an annualized basis for the first
quarter of 1998 compared to nine times for all of 1997.
Capital expenditures of $497,000 during the first quarter of 1998 primarily
resulted from the addition of equipment to automate the production and handling
of the Company's mat products as well as continued expansion of the Company's
rubber processing facility. Total capital expenditures are expected to be not
more than $3.5 million during 1998 and will be incurred primarily to purchase
and/or refurbish existing rubber processing equipment in order to further
increase production capacity and to increase the capability to use additional
tire chips instead of buffings and to purchase production equipment to diversify
the Company's product offerings. The $3.5 million of capital expenditures will
be financed primarily through the use of existing tax credits available to the
Company.
On April 1, 1998, the Company announced the acquisition of substantially all of
the assets of certain divisions of Iowa Mat Company for $600,000 in cash and
66,667 shares of the Company's Common Stock. In addition, based upon achieving
certain revenue goals from Iowa Mat Company products, the Company is required to
issue an additional $200,000 of the Company's Common Stock to the sellers of
Iowa Mat Company based upon the then
8
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current market price of the Company's Common Stock. A majority of the
$600,000 cash payment was financed with the Company's existing bank
facilities.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as a part of this report are listed below and this
list is intended to constitute the exhibit index.
EXHIBIT NO.
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, 1998.
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 8, 1998 R-B RUBBER PRODUCTS, INC.
By: /s/ RONALD L. BOGH
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Ronald L. Bogh
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
By: /s/ BRIAN C. ALLEN
----------------------------
Brian C. Allen
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 274,447
<SECURITIES> 0
<RECEIVABLES> 893,435
<ALLOWANCES> 6,191
<INVENTORY> 919,671
<CURRENT-ASSETS> 2,152,819
<PP&E> 6,291,052
<DEPRECIATION> 1,854,323
<TOTAL-ASSETS> 6,864,183
<CURRENT-LIABILITIES> 1,107,646
<BONDS> 1,236,306
0
0
<COMMON> 3,797,442
<OTHER-SE> 969,063
<TOTAL-LIABILITY-AND-EQUITY> 6,864,183
<SALES> 1,925,690
<TOTAL-REVENUES> 1,925,690
<CGS> 1,165,450
<TOTAL-COSTS> 1,165,450
<OTHER-EXPENSES> 552,235
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,219
<INCOME-PRETAX> 200,018
<INCOME-TAX> 67,142
<INCOME-CONTINUING> 132,876
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,876
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
