10-Q 1 l96783ae10vq.txt RVM INDUSTRIES, INC. 10-Q 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 September 30, 2002 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 November 1, 2002. 1 FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS 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") now know as Waterloo Holding Company, Albex Aluminum, Inc. ("Albex") and Signs and Blanks, Inc ("SABI"). All significant intercompany accounts and transactions have been eliminated. Certain amounts for the quarter ended September 30, 2001 have been reclassified for comparative purposes to conform with the presentation in the consolidated financial statements for the quarter ended September 30, 2002. 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, 2002 the Company was in violation of certain of its covenants related to its FirstMerit Bank, N.A. ("FirstMerit"). The Company restructured the debt with FirstMerit on April 5, 2002 and Mr. Jacob Pollock guaranteed $3,250,000 of the debt. The Company is in default as of March 31, and September 30, 2002 on payment of interest and principle of debentures in the amount of $419,019. The Company's liabilities exceed its assets and it no longer conducts its Albex and Ravens operations. These facts raise substantial doubt as to the Company's ability to continue as a going concern for a reasonable period of time. 3. DISPOSITIONS 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 the 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 six month period ended September 30, 2001, the loss from operations amounted to $9,477,387 of which $7,348,370 was the estimated loss on the disposal of Albex. On December 19, 2001, the Company sold the Albex extrusion building, machinery and equipment to an unrelated third party. The cash received of $4,250,000 from that sale was used to pay down secured debt. The Company signed a letter of intent in October 2001 to sell the cast house land, building and equipment. The sale was completed in July 2002 and the cash from the sale of $506,074 were used to pay down the debt to FirstMerit. 7 RVM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, Continued 3. DISPOSITIONS, (CONTINUED) 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 the discontinued operations of Ravens was not determined during the three month and the six-month period ended September 30, 2001. The statements presented for Ravens do not include any of management's estimated loss on the sale of Ravens' operations, severance costs, and other costs incurred to sell the operations of Ravens. For the full year ended March 31, 2002, the Company's loss on the discontinued operations of Ravens was $4,492,745, of which the operating loss to November 14, 2001 was $3,726,745. 4. DISCONTINUED OPERATIONS The dispositions of Ravens and Albex represent disposal of segments under SFAS 144. Accordingly, the revenue, costs and expenses, assets and liabilities and cash flows have been segregated in the unaudited Consolidated Statements of Income, unaudited Consolidated Balance Sheet and unaudited Consolidated Statement of Cash Flows. The following summarizes the results of discontinued operations.

8 RVM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. FINANCIAL OBLIGATIONS On April 5, 2002, FirstMerit amended the Company's revolving note agreement. The amended agreement extends the maturity of the revolving note from March 31, 2002 to March 31, 2003, reduces the interest rate from FirstMerit's prime rate plus .75% to FirstMerit's prime rate plus .50%, and amends the maximum outstanding balance of the revolving loan to $350,000. On August 30, 2002 FirstMerit amended the revolving loan to $500,000. The Company owed $423,258 under this agreement at September 30, 2002. The Company paid off all other loans to FirstMerit and entered into a new agreement on April 5, 2002 that replaced those loans with a single loan of $3,540,977. Interest on the loan was fixed at 6.0%. Interest only payments are due until October 2002 and monthly interest and principle payments made on a twenty year amortization schedule thereafter. The note matures with all remaining principal due on March 31, 2007. The Company entered into a short-term draw down note with FirstMerit for $450,000 interest fixed at 7.0%. All interest and principal is due on September 30, 2002. The Company paid off the note on September 30, 2002 and had not borrowed against the note as of March 31, 2002. Mr. Jacob Pollock provided a $3,250,000 personal guarantee on the above loans to FirstMerit. 6. 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 2002 and 2001. 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. 7. INVENTORIES Inventories consist of the following:

9 RVM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, Continued 8. RECENT ACCOUNTING PRONOUNCEMENTS: In June 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 146 "Accounting for Costs Associated with Exit or Disposal Activities. " SFAS No. 146" generally require companies to recognize costs associated with the exit activities when they are incurred rather than at the date of commitment to the exit activity or disposal plan. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002. The Company elected to implement this standard for the disposal activities of selling Ravens assets and certain liabilities and the exiting and sale of assets of Albex for the year ended March 31, 2002. In June 2002, FASB issued Statement of Financial Accounting Standards No. 145 which rescinded SFAS No. 4 "Reporting Gains and Losses from Extinguishment of Debt". SFAS No. 4 had required companies to report gains and losses from extinguishment of debt to be classified as an extraordinary item net of related income tax effect. The Company early adopted SFAS 145 in the reporting of its gain from the extinguishment of debt. In August 2001, 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 the fiscal year beginning after December 15, 2001 for the 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 elected early adaptation of SFAS 144 for the year ended March 31, 2002. In July 2001, 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. 9. CONTINGENT LIABILITIES The Company, Ravens, Waterloo Holding and Mr. Jacob Pollock have been named in a fraudulent suppression complaint made by Fontaine Trailer Company Inc. (Fontaine). The complaint involves warranty issues and the amount of warranty reserve transferred to Fontaine as part of the purchase price of Ravens. The Company believes that the reserve was adequate to fund all warranty claims in the future for units sold by Ravens prior to the sale of the company. 10 RVM INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS, Continued 9. CONTINGENT LIABILITIES, (CONTINUED) The Company and Albex in August 2001 were named as defendants in a wrongful death and employer intentional tort claim. 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, as the jury will have broad discretion to fix the amount of damages it awards for both compensatory and punitive damages. The Company believes in the strength of its defenses and intends to assert them if a trial is necessary. The Company also believes any settlement is within the limits of its insurance policies. Albex has been named in a number of unsecured creditors claims for amounts due. The sale of all of the assets of Albex will be used to pay down the debt to the secured creditors. The Company notified all of Albex's unsecured creditors that payment was not probable. Albex has been named in a foreclosure proceeding relating to the mortgage on the land and buildings. Albex will surrender the land and buildings to the mortgage holder when the proceeding is completed. The mortgage holder is a company controlled by Mr. Jacob Pollock. The mortgage on the land and building is $2,400,000 and the appraisal for the land and buildings as of May 3, 2001 was $1,820,000. The Company is also involved in other claims and litigation arising in the ordinary course of business. Management believes that the outcome of such claims will not have a material adverse effect on the Company's financial position and the results of operations and cash flow 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND ANALYSIS OF OPERATIONS MATERIAL CHANGES IN FINANCIAL CONDITION The Company had cash and cash equivalents of $834,365 and $195,905 at September 30, 2002 and March 31, 2002, respectively. The Company could have borrowed approximately $76,742 more on a line of credit with FirstMerit Bank on September 30, 2002. The Company owes FirstMerit at September 30, 2002 $3,015,977 on a five year note that is secured by all of the Company's inventory, receivables and fixed assets. See footnote 5 to the unaudited Consolidated Financial Statements for discussion on the financial obligations of the Company. The proceeds from the sale of the remaining assets of Albex and Ravens will be used to fund operating expenses to close down those discontinued businesses and to substantially reduce the secured debt. A Company controlled by Mr. Jacob Pollock intends to purchase all of the outstanding stock of the Company. The Company will notify all outstanding shareholders and members of his family regarding the details of this transaction in its Information Statement for the 2002 annual meeting of the stockholders. 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 $942,849 reflect a decrease from year-end of $99,343 resulting from lower sales. Inventories (SABI only) of $ 1,846,021 increased from year-end by $399,705. Inventories have increased due to the combination of mix of sales and availability of lower cost material. Capital expenditures at SABI were $94,637 mainly for equipment that improved the operations and increased capacity for items not previously sold by SABI. Accounts Payable (SABI only) of $1,829,217 increased $402,088 and reflects mainly the increase in inventory for the same period. Mr. Jacob Pollock advance the Company $40,000 to purchase capital equipment at SABI. The terms are equal four-month payments (of which $30,000 has been repaid as of September 30, 2002) with no interest. Accrued expenses increased due to interest accrued but not paid on the Albex's note to Jacob Pollock. The Company believes that if SABI were sold along with the completion of the sale of the remaining assets of Albex the amount received would be required to pay down the debt owed to FirstMerit that is due March 31, 2003 and 2007. 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 the Albex assets 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 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 SIX MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30,2001 Consolidated net sales, (SABI only), were $3,789,248 or 13.3% lower than last year. The general slowdown of the economy caused the lower sales as government agencies are cutting back purchases. Gross profit as a percent of net sales decreased to 3.5% from 6.4%, due mainly to mix of product and lower selling prices. Selling and general and administrative costs decreased 10.4% to $583,765 resulting from a reduction in corporate overheads. The Company's loss from continuing operations was $(451,928) compared to $(373,702) in the comparable period last year. Discontinued operations net loss of $(264,875) resulted from interest expense on the Albex bank debt and continuing expenses to complete the sale of the assets of Waterloo Holding (formerly Ravens) and Albex. THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30,2001 Consolidated net sales, (SABI only), were $1,791,224 or 10.2% lower than last year. The general slowdown of the economy caused the lower sales as government agencies are cutting back purchases. Gross profit as a percent of net sales decreased to 2.2% from 6.8%, due mainly to mix of product and lower selling prices. Selling and general and administrative costs decreased 7.0% to $300,311 resulting from a reduction in corporate overheads. The Company's loss from continuing operations was $(260,567) compared to $(186,375) in the comparable period last year. Discontinued operations net loss of $(115,462) resulted from interest expense on the Albex bank debt and continuing expenses to complete the sale of the assets of Waterloo Holding (formerly Ravens) and Albex. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Derivative Financial Instruments The Company does not hold or issue derivative financial instruments for any purposes. Interest Rate Exposure Based on the Company's overall interest rate exposure as of and during the quarter ended September 30, 2002 a near-term change in interest rates, based on historical interest rate movements, would not materially affect the Company's consolidated financial position, results of operations or cash flows. 13 ITEM 4. CONTROLS AND PROCEDURES Within the ninety-day period preceding the filing of this quarterly report, management, including the Chief Executive Officer/Chief Financial Officer of the Company, conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based on that evaluation, the Chief Executive Officer/Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to him in a timely fashion. There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer/Chief Financial Officer completed his evaluation. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company, Waterloo Holding (formerly Ravens) and Mr. Jerry Pollock have been named in a fraudulent suppression complaint made by Fontaine Trailer Company, Inc. The complaint involves warranty issues and the amount of warranty reserve transferred to Fontaine Trailer Company, Inc. as part of the purchase price of Ravens. The Company believes that the reserve was adequate to fund all warranty claims in the future for units sold by Ravens prior to the sale of the company. The Company and Albex in August 2001 were named in a wrongful death and employer intentional tort claim. 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, as the jury will have broad discretion to fix the amount of damages it awards for both compensatory and punitive damages. The Company believes in the strength of its defense and intends to assert them if a trial is necessary. The Company also believes any settlement is within the limits of its insurance policies. Albex has been named in a number of unsecured creditors claims for amounts due. The sale of all of the assets of Albex will be used to pay down the debt to the secured creditors. The Company had notified all of Albex's unsecured creditors that payment was not probable. Albex has been named in a foreclosure proceeding relating to the mortgage on the land and buildings. Albex will surrender the land and buildings to the mortgage holder when the proceeding is completed. The mortgage holder is a company controlled by Mr. Jerry Pollock. The mortgage on the land and building is $2,400,000 and the appraisal for the land and buildings as of May 3, 2001 was $1,820,000. The Company is involved in various claims and litigation arising in the ordinary course of business. Management believes 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. 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit No. Item ---------- ----- 99 Section 906 Certification of Chief Executive and Chief Financial Officer (b) Reports on Form 8-K: A Form 8-K was filed on July 15, 2002 naming Saltz, Shamis & Goldfarb, Inc. as the Company's auditor. 15 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, Director, Chief Executive Officer/Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) Dated: November 12, 2002 16 CERTIFICATIONS PURSUANT TO SECTION 302 THE SARBANES-OXLEY ACT OF 2002 I, Jacob Pollock, Chief Executive Officer/Chief Financial Officer of the registrant, hereby certify that: (1) I have reviewed the quarterly report of the registrant; (2) Based on my knowledge, this amended quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this amended quarterly report; (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this amended quarterly report; (4) I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have: (i) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in this quarterly report was being prepared; (ii) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("Evaluation Date"); and (iii) Presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation Date; (5) I have disclosed, based on my most recent evaluation, to the registrant's auditors and the auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function): \ (i) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (ii) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and (6) I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. By: /s/ Jacob Pollock -------------------- Jacob Pollock, Director, Chief Executive Officer/Chief Financial Officer November 12, 2002 17

RVM INDUSTRIES INC 10-Q