10-Q 1 l92792ae10-q.txt RVM INDUSTRIES, INC. 10-Q/QUARTER END 12-31-01 SECURITIES AND EXCHANGE COMMISSION Washington, D.C., 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended December 31, 2001 Commission File No. 0-1709 --------------- RVM INDUSTRIES, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 31-1515410 ----------------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 753 W. Waterloo Road, Akron, Ohio 44314-1519 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (330) 753-4545 NOT APPLICABLE -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed from last report) Indicate by check mark whether the registrant (1) has 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 --- --- There were 1,937,505 shares outstanding of the Registrant's common stock as of February 4, 2002. 1 RVM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited)

See accompanying notes to the consolidated financial statements (unaudited). 2 RVM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited), Continued

See accompanying notes to the consolidated financial statements (unaudited). 3 RVM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

See accompanying notes to the consolidated financial statements (unaudited). 4 RVM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

See accompanying notes to the consolidated financial statements (unaudited). 5 RVM INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

See accompanying notes to the consolidated financial statements (unaudited). 6 RVM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The information in this report reflects all adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented for RVM Industries, Inc. ("the Company"). All adjustments other than those described in this report are, in the opinion of management, of a normal and recurring nature. These consolidated financial statements include the accounts of RVM's wholly owned subsidiaries: Ravens, Inc. ("Ravens"), Albex Aluminum, Inc. ("Albex") and Signs and Blanks, Inc ("SABI"). All significant intercompany accounts and transactions have been eliminated. 2. GOING CONCERN OF THE COMPANY The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As of March 31, 2001 and through December 31, 2001, the Company was in violation of certain of its covenants related to FirstMerit Bank, N.A. ("FirstMerit") debt in the total amount of $3,470,253. The current default rendered this debt callable and as a result, the debt was classified as a current liability on the balance sheet at March 31, 2001. The loan agreements with FirstMerit bank were amended on October 3, 2001, establishing a maturity date of March 31, 2002 for all of the FirstMerit debt (see Note 4 for additional terms of amendment). Accordingly, this debt has been classified as a current liability as of December 31, 2001. In addition, the Company is in default of other long-term debt of $2,150,000 resulting from the default on the FirstMerit letter of credit. The current default of other long-term debt of $2,150,000 renders the debt callable and as a result, the debt has been classified as a current liability on the balance sheet. The Company is in default on payment of interest and principle of debentures in the amount of $419,018. These along with the Company's Board of Directors decision to shutdown Albex and sell the operations of Ravens raise substantial doubt as to the Company's ability to continue as a going concern for a reasonable period of time. 3. DISCONTINUED OPERATIONS In August 2001, the Company's Board of Directors approved a plan to shutdown Albex. Accordingly, the results of operations for Albex have been presented as a discontinued operation in the accompanying unaudited consolidated financial statements for all periods presented. The estimated loss on disposal of discontinued operations of Albex has been determined based on management's estimated loss related to the write-down of impaired property, plant, and equipment and estimated losses from operations during the phase-out period. For the nine months ended December 31,2001 the loss amounted to $5,898,919. On December 19, 2001, the Company sold Albex extrusion building, machinery and equipment to a non-related investor. The cash received from that sale was used to pay down secured debt. 7 3. DISCONTINUED OPERATIONS (CONTINUED) The loss from operations for Albex for each period are presented below:

On November 14, 2001, the Company sold the operating assets and liabilities of Ravens. Accordingly, the results of operations for Ravens have been presented as a discontinued operation in the accompanying unaudited consolidated financial statements for all periods presented. The estimated loss of disposal of discontinued operations of Ravens has been determined based on management's estimated loss on the sale of Ravens' operations, severance costs, and other costs incurred to sell the operations of Ravens. For the nine months ended December 31, 2001 the loss amounted to $2,851,000. The loss from operations for Ravens' for each period are presented below:

The current and non-current assets and liabilities of Albex have been classified appropriately on the unaudited consolidated balance sheet at December 31, 2001 and March 31, 2001 based on the timing and the amount of anticipated net proceeds related to the sale of the assets of Albex. The net assets of Ravens have been classified as a current asset. 8 4. FINANCIAL OBLIGATIONS On October 3, 2001, FirstMerit bank amended the Company's revolving note agreement. The amended agreement extends the maturity of the revolving note from August 31, 2001 to March 31, 2002, increases the interest rate from FirstMerit's prime rate to FirstMerit's prime rate plus .75%, and amends the maximum outstanding balance of revolving loans to $11.0 million; however, when the Company sells the operations of Ravens, the maximum revolving loans available shall not exceed $9.0 million. On October 3, 2001, FirstMerit bank amended the Company's fixed asset term note agreement. The amended agreement reduces the maturity from September 30, 2006 to March 31, 2002 and increases the interest rate from FirstMerit's prime rate to 7.75%. Monthly payments will be made to FirstMerit calculated on a fifteen-year amortization at 7.75%. On July 3, 2001, the Company entered into a $750,000 short-term note with FirstMerit bank. Interest is 9.0% and the note matured on August 2, 2001. On October 3, 2001, FirstMerit bank amended the Company's short-term note agreement. The amended agreement extends the maturity from August 2, 2001 to March 31, 2002. The amendment on October 3, 2001 also established new guarantees and mortgages, documented FirstMerit's consent to the sale of Ravens and SABI and the liquidation of Albex, and established new covenants. 5. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share are based on net income (loss) divided by the weighted average number of common shares outstanding. The weighted average number of common shares outstanding was 1,937,505 in 2001 and 2000. Diluted earnings per share reflect the potential dilution that could occur if all options or contracts to issue common stock were issued or converted. Basic earnings per share for the Company is the same as diluted earnings per share. 6. INVENTORIES Inventories consist of the following: December 31, 2001 March 31, 2001 ------------------------- -------------------- Raw materials $ 909,956 $ 704,427 Work in process - - Finished goods 540,839 548,164 ------------------------- -------------------- $1,450,795 $1,252,591 ========================= ==================== 9 7. ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase method be used for all business combinations initiated after June 30, 2001. SFAS 142 requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. The amortization of goodwill ceases upon adoption of SFAS 142, which for the Company will be April 1, 2002. The Company does not anticipate that the adoption of the new statement will have a significant effect on earnings or the financial position of the Company. In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 is effective for fiscal year beginning after December 15, 2001 or fiscal year beginning April 1, 2002 for the Company. SFAS 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. The Company is currently evaluating the impact of SFAS 144. On April 1, 2001, the Company adopted Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (SFAS 133). SFAS 133, requires the Company to recognize all derivative financial instruments on the balance sheet at fair value. The Company does not utilize derivative financial instruments; therefore, there was no impact upon adoption. 8. CONTINGENT LIABILITIES The Company, Albex and an unrelated party were defendants in a wrongful death and employer intentional tort claim. In July 2001, the plaintiff, the Company, and the Company's insurance carriers settled this claim within the limits of the Company's insurance policies and therefore there was not any impact on the Company's financial position and results of operations and cash flows. The Company and Albex, in August 2001, were named in a wrongful death and intentional tort claim. The defendants and their insurance companies believe in the strength of their defenses and intend to asset them if a trial is necessary. In cases like this where there are many underlying facts that are disputed it is difficult to predict a favorable or unfavorable outcome. If the plaintiff prevails against the Company, liability is significant, and a jury will have broad discretion to fix the amount of damages it awards for both compensatory and punitive damages. The Company is also involved in other claims and litigation arising in the ordinary course of business. Management expects that the outcome of such claims will not have a material adverse effect on the Company's financial position and results of operations and cash flows. 10 RVM INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS DECEMBER 31, 2001 MATERIAL CHANGES IN FINANCIAL CONDITION The Company had cash and cash equivalents of $1,044,229 and $1,108,115 at December 31, 2001 and March 31, 2001, respectively. The Company and FirstMerit Bank on October 3, 2001 agreed to amend the loan agreements in order for the company to complete the sale of the Ravens and the Albex assets. The line of credit, secured by the Company's accounts receivable and inventory, was extended from August 31, 2001 to March 31, 2002; the maximum loan limit is $ 11,000,000 and the interest rate is prime plus 0.75% per annum. The maximum loan limit amount decreases to $9,000,000 on November 15, 2001. The Company owed $1,627,917 on the line of credit at December 31, 2001. The term note with FirstMerit that is secured by certain pieces of machinery, equipment, property, of Albex, the due date was amended from September 30, 2006 to March 31, 2002. The amortization of the loans remains at fifteen years and the interest is fixed at 7.75% per annum. FirstMerit entered into a short-term note with the Company providing a $750,000 fixed term loan, at a fixed interest rate of 9.0% per annum, and monthly interest only payments that are due March 31, 2002. The Company owed $1,842,336 on the two term loans as of December 31, 2001. Mr. Jacob Pollock, the principle stockholder of the Company increased his personal guarantee for the two FirstMerit loans from $2,500,000 to $3,250,000. The proceeds from the sale of certain assets of Albex and the sale of all the assets net of assumed liabilities of Ravens was used to fund operating expenses to close down those businesses and to reduce substantially the secured debt and the line of credit. In December 2001, Mr. Jacob Pollock resolved a liability of Albex that he had personally guaranteed for $525,000. The company recorded Mr. Pollock's payment of the liability as paid in capital. The financial statements in this document have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of assets carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. Account Receivables (SABI only) of $792,185 reflect a decrease from year-end of $126,765 resulting from lower sales. Inventories (SABI only) of $ 1,450,794 increased from year-end by $198,204. Inventories have increased due to the combination of mix of sales and availability of lower cost material. Current Assets of discontinued businesses of Ravens and of Albex reflect the liquidation of Albex Accounts Receivables and Inventory due to the close down of the business and the sale of Ravens assets. The reduction of the value of the non current assets of discontinued business results mainly from the estimated loss on sale of the fixed assets of Albex cast house equipment and building, and from the sale of the extrusion business building and equipment. 11 Accounts Payable (SABI only) of $1,861,680 increased $266,200 and reflected the increase in extended payment terms provided by suppliers. Current portion of long-term debt, debt in default, and current liabilities of discontinued operations netted were lower. The cash received from the sale of Ravens assets and the transfer of certain liabilities to the purchaser and the sale of Albex extrusion fixed assets was used to pay down the debt and to reduce liabilities of the Company. Although no assurances are possible, the Company believes that the current financing with FirstMerit will allow SABI to function as a going concern. The Company believes that the sale of the assets and certain liabilities of SABI will be completed in the near future. The Company believes that the sale of these assets along with the completion of the sale of the remaining assets of Albex are required to pay down the debt owed to FirstMerit that is due March 31, 2002. The only alternative is to arrange new financing. The Company believes that the potential sale of the SABI assets and liabilities and the sale of Albex asset will generate enough cash to pay down most of the senior secured debt. However certain unsecured vendors (mainly at Albex) will not be paid. As the Company winds down the operations, its shares will have little or no value to the stockholders and it is unlikely that the Company will pay the debt to related parties. 12 Nine Months Ended December 31, 2001 Compared to the --------------------------------------------------- Nine Months Ended December 31, 2000 ----------------------------------- Consolidated net sales, which represent SABI only, were $6,107,499 or $1,263,806 (17.1%) lower than last year. Closing non-profitable sales offices in Pennsylvania and North Dakota and the general slowdown of the economy caused the lower sales. Gross Profit as a percent of net sales decreased to 7.6% from 8.7%, due mainly to mix of product and higher material cost. Selling and General Administrative costs were reduced 23.5% to $473,362. Other income was lower than last year due to a one time workers compensation grant received last year. SABI loss for the six-month period was $(43,388) compared to a loss of $(12,610) in the comparable period last year. The Company completed the sale of Ravens assets and certain liabilities to Fontaine Trailer Company. The transaction was completed on November 14, 2001. The company recorded an estimated $2,851,000 loss on the disposition of Ravens that includes a loss on the sale of the assets and the cost incurred to sell Ravens. The continuing losses at Ravens due to the severe downturn in truck trailer sales and the inability to find long term replacement financing resulted in the Company's decision to sell Ravens. The Company utilized the cash generated from the sale of Ravens to reduce secured party debt and for cost associated with the sale of the company. The Company announced the close down of Albex on August 10, 2001. Albex had continuing losses due to the steep decline in the truck trailer market and also to the overall decline in the manufacturing segment in the country. The Company expected Albex to continue the significant losses for the next few quarters before the overall economy and especially the truck trailer market would improve. The Company could not continue to fund continuing losses at Albex from the cash flow of the other businesses. The Company will liquidate the assets of Albex and use the proceeds to reduce secured debt. The Company recorded a $5,898,919 provision for the estimated losses from operations during the phase out period and managements estimate of losses related to the write down of impaired property plant and equipment. The Company sold to a non-related investor, Albex extrusion building and the machinery and equipment. The transaction was completed December 19, 2001. The company has signed a letter of intent to sell the cast house building and all of the equipment to a non-related third party. The sale is expected to be complete by March 31, 2002. Three Months Ended December 31, 2001 Compared to the ---------------------------------------------------- Three Months Ended December 31, 2000 ------------------------------------ Consolidated net sales, which represent SABI only, were $1,736,760 or 9.3% lower than last year. Closing non-profitable sales offices in Pennsylvania and North Dakota and the general slowdown of the economy caused the lower sales. Gross Profit as a percent of net sales increased to 10.6% from 8.1%, due mainly to mix of product and lower material cost. Selling and General Administrative costs were reduced 12.2% to $163,539. Other income was lower than last year due to a loss on sale of fixed assets. SABI's profit for the three-month period was $5,376 compared to a loss of $(31,840) in the comparable period last year. Ravens incurred an additional $501,856 of operating loss for the third quarter. Continuing low demand for the flat bed trailer suppressed sales and resulted in the loss. The continuing losses at Ravens due to the severe downturn in truck trailer sales and the inability to find long term replacement financing resulted in the Company's decision to sell Ravens. The Company revised the estimate of the loss on the sale of Ravens in the third quarter 13 by $516,000 due mainly to higher legal and professional costs associated with the sale of the company. The Company utilized the cash generated from the sale of Ravens to reduce secured party debt. The Albex operating loss increased minimally due to the completion of the closing of the facility in October, four months ahead of plan. Mr. Jacob Pollock the majority stockholder of RVM Industries settled a liability to a non-related third party that he had personally guaranteed for $525,000. The Company recorded the payment as paid in capital. The additional $1,471,000 forgiven on the liability was recorded as a reduction in the loss on disposal of Albex assets. FORWARD-LOOKING STATEMENTS Forward-looking statements in this Form 10-Q are made pursuant to the safe harbor provisions of Rule 175 promulgated under the Securities Act of 1933. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Potential risks and uncertainties include, but are not limited to: general business and economic conditions; the financial strength of the industries which the Company serves; the competitive pricing environment within the markets which the Company serves; labor disruptions; interruptions in the supply of raw materials and services; a significant increase in the price of aluminum; continued availability of credit from lenders and vendors; government regulations; and obsolescence of the Company's products and manufacturing technologies. 14 PART II. OTHER INFORMATION Item 1. Legal Disclosures The Company and Albex, in August 2001, were named in a wrongful death and intentional tort claim. The defendants and their insurance companies believe in the strength of their defenses and intend to asset them if a trial is necessary. In cases like this where there are many underlying facts that are disputed it is difficult to predict a favorable or unfavorable outcome. If the plaintiff prevails against the Company, liability is significant, and a jury will have broad discretion to fix the amount of damages it awards for both compensatory and punitive damages. Item 5. Other Information The Company's outside independent accountants as required by Reg. S-X Rule 10-01(d) did not review the enclosed unaudited financial statements. James R. McCourt has resigned as of February 8, 2002 as the Company's Chief Financial Officer and Principal Accounting Officer. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit No. Item ----------- ---- (b) Reports on Form 8-K: A Form 8-K was filed on August 10, 2001 describing the closing of the Albex Aluminum Subsidiary. A Form 8-K was filed on November 21, 2001 describing the sale of the Ravens Assets. A Form 8-K was filed on December 21, 2001 describing the resignation of the Company's auditor. SIGNATURES ---------- In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RVM INDUSTRIES, INC. -------------------- (Registrant) By: /S/ Jacob Pollock ---------------------------------- Jacob Pollock Principal Financial Officer and Principal Accounting Officer Date: February 13, 2002 15

RVM INDUSTRIES INC 10-Q