UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to___________________
Commission file no. 001-12673
RIVIERA TOOL COMPANY
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-2828870
------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5460 Executive Parkway S.E., Grand Rapids, Michigan 49512
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(616) 698-2100
--------------------------------------------------
(Registrant's telephone number, including area code)
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
---
Indicate by check mark whether the Registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act).
Yes No X
---
There were 3,774,346 shares of the Registrant's common stock outstanding as of
January 14, 2005.
1
PART I
FINANCIAL INFORMATION
INDEX
Page No.
Item 1. Financial Statements
Balance Sheets as of November 30, 2004 and August 31,2004 ................................ 3
Statements of Operations for the Three Months Ended November 30, 2004 and 2003 ........... 4
Statements of Cash Flows for the Three Months Ended November 30, 2004 and 2003 ........... 5
Notes to Financial Statements ............................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk ............................... 12
Item 4. Controls and Procedures .................................................................. 12
PART II
OTHER INFORMATION
INDEX
Item 5. Other Information ........................................................................ 12
Item 6. Exhibits and Reports on Form 8 - K ....................................................... 12
Signatures ............................................................................... 13
Certifications
Exhibits
2
RIVIERA TOOL COMPANY
FINANCIAL STATEMENTS
BALANCE SHEETS
-----------------------------------
NOVEMBER 30, AUGUST 31,
ASSETS 2004 2004
------ ------------ ------------
CURRENT ASSETS NOTE (UNAUDITED) (AUDITED)
-------------- ---- ------------ ------------
Cash ......................................................... $ 883,429 $ 1,200
Accounts receivable .......................................... 9,357,715 13,075,285
Costs in excess of billings on contracts in process .......... 2 1,475,711 669,143
Inventories .................................................. 238,301 238,301
Prepaid expenses and other current assets .................... 207,466 235,203
------------ ------------
Total current assets ............................... 12,162,622 14,219,132
PROPERTY, PLANT AND EQUIPMENT, NET ............................. 3 12,131,328 12,328,746
PERISHABLE TOOLING ............................................. 780,854 726,704
OTHER ASSETS ................................................... 644,181 623,635
------------ ------------
Total assets ....................................... $ 25,718,985 $ 27,898,217
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
-------------------
Current portion of long-term debt ............................ 4 $ 14,834,421 $ 15,742,669
Accounts payable ............................................. 3,915,998 4,908,893
Accrued liabilities .......................................... 640,456 521,193
------------ ------------
Total current liabilities .......................... 19,390,875 21,172,755
LONG-TERM DEBT ................................................. 4 10,787 12,703
ACCRUED LEASE EXPENSE .......................................... 764,186 740,894
DEFERRED COMPENSATION .......................................... 166,474 166,474
DEFERRED INTEREST .............................................. 4 71,412 25,500
------------ ------------
Total liabilities .................................. 20,403,734 22,118,326
------------ ------------
PREFERRED STOCK - no par value, $100 mandatory redemption value:
Authorized - 5,000 shares
Issued and outstanding - no shares ...................... -- --
STOCKHOLDERS' EQUITY:
Preferred stock - no par value,
Authorized - 200,000 shares
Issued and outstanding - no shares ........................ -- --
Common stock - No par value:
Authorized - 9,785,575 shares
Issued and outstanding - 3,774,346 shares
As of November 30 and August 31, 2004 ..................... 16,426,378 16,426,378
Retained deficit ............................................. (11,111,127) (10,646,487)
------------ ------------
Total stockholders' equity ......................... 5,315,251 5,779,891
------------ ------------
Total liabilities and stockholders' equity ..................... $ 25,718,985 $ 27,898,217
============ ============
See notes to financial statements
3
RIVIERA TOOL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
NOVEMBER 30
---------------------------------
2004 2003
----------- -----------
SALES ............................................ $ 4,552,551 $ 8,310,761
COST OF SALES .................................... 4,038,460 7,460,817
----------- -----------
GROSS PROFIT ............................... 514,091 849,944
SELLING AND ADMINISTRATIVE EXPENSES .............. 579,341 403,487
----------- -----------
INCOME/(LOSS) FROM OPERATIONS .............. (65,250) 446,457
OTHER EXPENSE
INTEREST EXPENSE .............................. 393,163 208,528
OTHER EXPENSE ................................. 6,227 --
----------- -----------
TOTAL OTHER EXPENSE ........................ 399,390 208,528
INCOME/(LOSS) BEFORE INCOME TAX
EXPENSE ......................................... (464,640) 237,929
----------- -----------
INCOME TAX EXPENSE ............................... -- --
----------- -----------
NET INCOME/(LOSS) AVAILABLE
FOR COMMON SHARES ............................... $ (464,640) $ 237,929
=========== ===========
BASIC AND DILUTED INCOME/(LOSS)
PER COMMON SHARE ................................ $ (.12) $ .07
=========== ===========
BASIC AND DILUTED COMMON SHARES OUTSTANDING ...... 3,774,346 3,379,609
=========== ===========
See notes to financial statements
4
RIVIERA TOOL COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
-------------------------------
2004 2003
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) ............................................................ $ (464,640) $ 237,929
Adjustments to reconcile net income/(loss) to net
cash from operating activities:
Depreciation and amortization ............................................ 427,701 421,600
(Increase) decrease in assets:
Accounts receivable ................................................... 3,717,570 3,564,092
Costs in excess of billings on contracts in process ................... (806,568) 898,997
Perishable tooling .................................................... (54,150) (5,933)
Prepaid expenses and other current assets ............................. 27,737 23,396
Increase (decrease) in liabilities:
Accounts payable ...................................................... (992,895) (1,748,091)
Accrued outsourced contracts payable .................................. -- 826,411
Accrued lease expense ................................................. 23,292 25,050
Accrued liabilities ................................................... 119,263 232,210
----------- -----------
Net cash provided from operating activities .................................... $ 1,997,310 $ 4,475,661
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in other assets ..................................................... (20,546) (22,462)
Additions to property, plant and equipment ................................... (230,283) (124,794)
----------- -----------
Net cash used in investing activities .......................................... $ (250,829) $ (147,256)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments on revolving credit line ...................................... (747,696) (4,170,053)
Principal payments on notes payable to bank
and non-revolving equipment line of credit .................................. (162,468) (157,152)
Deferred interest ............................................................ 45,912 --
----------- -----------
Net cash used in financing activities .......................................... $ (864,252) $(4,327,205)
----------- -----------
NET INCREASE IN CASH ........................................................... $ 882,229 $ 1,200
----------- -----------
CASH - Beginning of Period ..................................................... 1,200 --
----------- -----------
CASH - End of Period ........................................................... $ 883,429 $ 1,200
=========== ===========
See notes to financial statements
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2004
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements (the "Financial
Statements") of Riviera Tool Company (the "Company") have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, the Financial Statements do not include all the
information and footnotes normally included in the annual financial statements
prepared in accordance with generally accepted accounting principles.
In the opinion of management, the Financial Statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
such information in accordance with generally accepted accounting principles.
These Financial Statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's Form 10-K dated
December 27, 2004, for the fiscal year ended August 31, 2004.
The Company's financial statements were prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. During fiscal 2004, the Company sustained both a
significant loss from operations as well as net loss. This loss resulted in an
accumulated deficit. Further, the Company was not in compliance with the
covenants of its long-term loan agreement causing the Company's debt to be
classified as current in the financial statements. The Company currently has an
extension of such agreement until March 15, 2005. These factors, among other
things, raised substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
The Company believes that the revolving line of credit and the funds generated
from operations, will be sufficient to cover anticipated cash needs through
fiscal 2005. However, depending on Company's primary lenders willingness to
extend the due date of the facility as well as the level of future sales, terms
of such sales, financial performance and cash flow of existing contracts, such
financing may not be sufficient to support operations. Therefore, the Company
may be required to seek additional sources of funding.
The results of operations for the three-month period ended November 30, 2004 may
not be indicative of the results to be expected for the full year.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment if changes in circumstances
or the occurrence of events suggest the remaining value may not be recoverable.
An asset is deemed impaired and written down to its fair value if estimated
related total future undiscounted cash flows are less than its book (carrying)
value. The Company, in performing its evaluation of long-lived assets for
impairment, utilized financial projections for five future years including total
undiscounted cash flow. In developing the projections, the Company estimated
revenues for each year and estimated resulting margins based upon various
assumptions including future market pricing trends and historical financial
costs. The analysis concluded that the estimated total undiscounted future cash
flows were in excess of the carrying value of long-lived assets. Had the
analysis concluded that the total undiscounted future cash flows been below the
carrying value, an impairment charge of the difference between the carrying
value and the lower of the total discounted cash flows or fair value would have
been recorded.
6
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2004
NOTE 2 - COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows:
NOVEMBER 30, AUGUST 31,
2004 2004
------------ ------------
Costs incurred on contracts in process under the percentage of completion method $ 4,829,181 $ 22,265,744
Estimated gross loss ........................................................... (625,000) (4,250,000)
------------ ------------
Total .................................................................. 4,204,181 18,015,744
Less progress payments received and progress billings to date .................. 2,794,794 17,586,991
Plus costs incurred on contracts in process
under the completed contract method ............................................ 66,324 240,390
------------ ------------
Costs in excess of billings on contracts in process ............................ $ 1,475,711 $ 669,143
============ ============
Included in estimated gross profit for November 30, 2004 and August 31, 2004 are
jobs with losses accrued of $871,659 and $5,190,491, respectively.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consist of the following:
NOVEMBER 30, AUGUST 31,
CATEGORY 2004 2004
-------- ------------ ------------
Leasehold improvements ................................. $ 1,489,302 $ 1,367,908
Office furniture and fixtures .......................... 173,994 169,129
Machinery and equipment ................................ 23,080,863 23,080,863
Construction in Process ................................ 76,184 --
Computer equipment and software ........................ 2,816,329 2,788,489
Transportation equipment ............................... 109,782 109,782
------------ ------------
Total cost ........................................ 27,746,454 27,516,171
Less Accumulated depreciation and amortization ......... 15,615,126 15,187,425
------------ ------------
Net carrying amount ............................... $ 12,131,328 $ 12,328,746
============ ============
NOTE 4 - LONG-TERM DEBT
The Company's long-term debt consists of the following:
NOVEMBER 30, AUGUST 31,
2004 2004
------------ ------------
REVOLVING WORKING CAPITAL CREDIT LINE
-------------------------------------
The revolving working capital credit line is
collateralized by substantially all assets of
the Company and provides for borrowing, subject
to certain collateral requirements up to $5.0
million until January 28, 2005, thereafter such
amount reduces to $4.0 million The agreement
requires a commitment fee of .25% per annum on
the average daily unused portion of the
revolving credit line. The credit line is due
March 15, 2005, and bears interest, payable
monthly, at 4.0% above the bank's prime rate (as
of November 30, an effective rate of 9%) ....... $ 9,101,836 $ 9,849,532
7
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2004
NOTE 4 - LONG-TERM DEBT - CONTINUED
NOTES PAYABLE TO BANKS
----------------------
Note payable to bank, payable in monthly
installments of $33,334, plus interest at the
bank's prime rate plus 4.25% (as of November 17,
2004, an effective rate of 9.25%), due March 15,
2005 ......................................................... 1,300,000 1,400,000
Note payable to bank, payable in monthly
installments of $9,065, plus interest at the
bank's prime rate plus 4.25% (as of November 17,
2004, an effective rate of 9.25%), due March 15,
2005 ......................................................... 416,971 435,100
Subordinated note payable to bank, payable in
monthly installments of $31,000, including
interest at 11%, due January 1, 2008 ......................... 1,008,124 1,050,670
SUBORDINATED DEBT
-----------------
Subordinated note payable, principal payable in
quarterly installments of $250,000 commencing
September 30, 2007. Interest payable
quarterly, in arrears, commencing on September
30, 2004 at 14%. Deferred interest accrues at
6%, compounded quarterly and payable at the
earlier of loan pay-off or June 30, 2010 ..................... 3,000,000 3,000,000
----------- -----------
Total debt ............................................ 14,826,931 15,735,302
----------- -----------
Less current portion of long-term and subordinated debt 14,826,931 15,735,302
----------- -----------
Long-term and subordinated debt -- Net ................ $ -- $ --
=========== ===========
8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the components of the
Company's Statement of Operations as a percentage of sales.
For The Three Months Ended
November 30
----------------------------------
2004 2003
---------- ----------
SALES ..................................... 100.0% 100.0%
COST OF SALES ............................. 88.7% 89.8%
---------- ----------
GROSS PROFIT ................. 11.3% 10.2%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 12.7% 4.8%
---------- ----------
INCOME/(LOSS) FROM OPERATIONS (1.4%) 5.4%
INTEREST EXPENSE ........................ 8.7% 2.5%
OTHER EXPENSE ........................... 0.1% --
---------- ----------
TOTAL OTHER EXPENSE .............. 8.8% 2.9%
INCOME/(LOSS) BEFORE INCOME TAX EXPENSE ... (10.2%) 2.9%
INCOME TAX EXPENSE ........................ -- --
---------- ----------
NET INCOME/(LOSS) ............. (10.2%) 2.9%
========== ==========
FORWARD-LOOKING STATEMENT; RISKS AND UNCERTAINTIES
CERTAIN INFORMATION INCLUDED IN THIS QUARTERLY REPORT ON FORM 10-Q AND OTHER
MATERIALS FILED OR TO BE FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION CONTAIN CERTAIN STATEMENTS THAT MAY BE CONSIDERED FORWARD-LOOKING.
FOR THIS PURPOSE, ANY STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT
STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING STATEMENTS.
WITHOUT LIMITING THE FOREGOING, WORDS SUCH AS "MAY," "WILL," "EXPECT,"
"BELIEVE," "ANTICIPATE," "UNDERSTANDING," OR "CONTINUE," THE NEGATIVE OR OTHER
VARIATION THEREOF, OR COMPARABLE TERMINOLOGY, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. IN ADDITION, FROM TIME TO TIME, THE COMPANY MAY
RELEASE OR PUBLISH FORWARD-LOOKING STATEMENTS RELATING TO SUCH MATTERS AS
ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, TECHNOLOGICAL
DEVELOPMENTS AND SIMILAR MATTERS. THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 PROVIDES A SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS. IN ORDER TO
COMPLY WITH THE TERMS OF THE SAFE HARBOR, THE COMPANY NOTES THAT A VARIETY OF
FACTORS COULD CAUSE THE COMPANY'S ACTUAL RESULTS AND EXPERIENCE TO DIFFER
MATERIALLY FROM THE ANTICIPATED RESULTS OR OTHER EXPECTATIONS EXPRESSED IN THE
COMPANY'S FORWARD-LOOKING STATEMENTS. THESE STATEMENTS BY THEIR NATURE INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY
DEPENDING UPON A VARIETY OF FACTORS, INCLUDING CONTINUED MARKET DEMAND FOR THE
TYPES OF PRODUCTS AND SERVICES PRODUCED AND SOLD BY THE COMPANY.
9
BASIS OF PRESENTATION
The Company's financial statements were prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. During fiscal 2004, the Company sustained both a
significant loss from operations as well as net loss. This loss resulted in an
accumulated deficit. Further, the Company was not in compliance with the
covenants of its long-term loan agreement causing the Company's debt to be
classified as current in the financial statements. The Company currently has an
extension of such agreement until March 15, 2005. These factors, among other
things, raised substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
The Company believes that the revolving line of credit and the funds generated
from operations, will be sufficient to cover anticipated cash needs through
fiscal 2005. However, depending on Company's primary lenders willingness to
extend the due date of the facility as well as the level of future sales, terms
of such sales, financial performance and cash flow of existing contracts, such
financing may not be sufficient to support operations. Therefore, the Company
may be required to seek additional sources of funding.
The results of operations for the three-month period ended November 30, 2004 may
not be indicative of the results to be expected for the full year.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment if changes in
circumstances or the occurrence of events suggest the remaining value may not be
recoverable. An asset is deemed impaired and written down to its fair value if
estimated related total future undiscounted cash flows are less than its book
(carrying) value. The Company, in performing its evaluation of long-lived assets
for impairment, utilized financial projections for five future years including
total undiscounted cash flow. In developing the projections, the Company
estimated revenues for each year and estimated resulting margins based upon
various assumptions including future market pricing trends and historical
financial costs. The analysis concluded that the estimated total undiscounted
future cash flows were in excess of the carrying value of long-lived assets. Had
the analysis concluded that the total undiscounted future cash flows been below
the carrying value, an impairment charge of the difference between the carrying
value and the lower of the total discounted cash flows or fair value would have
been recorded.
COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 2004 TO THE THREE MONTHS ENDED
NOVEMBER 30, 2003.
REVENUES - Revenues for the three months ended November 30, 2004 totaled $4.6
million as compared to $8.3 million for the three months ended November 30,
2003, a decrease of $3.7 million or 45%. This decrease was a result of the
Company concluding two significant tooling programs during the fourth quarter of
fiscal 2004 and the first quarter of fiscal 2005. The customers for these
programs were Tier One suppliers to a European automaker.
All the dies for these two programs were completed and shipped by the end of the
first quarter of 2005. Upon completion and finalization of all costs related to
the manufacture of these dies, these two programs totaled approximately $46
million in revenue with a resulting net loss of $4 million.
The Company's backlog of awarded contracts, which are all believed to be firm,
was approximately $4.6 million and $22.1 million as of November 30, 2004 and
2003, respectively. Subsequent to November 30, 2004, the Company received an
additional $4.9 million in new orders, which are not reflected in the November
30, 2004 backlog amount. The Company expects all backlog contracts will be
reflected in sales during fiscal years ending August 31, 2005 and 2006.
COST OF SALES - Cost of goods sold decreased from $7.5 million for the first
quarter of fiscal 2004 to $4.0 million for 2005 and, as a percent of sales,
decreased from 89.8% for 2004 to 88.7% for 2005. Direct costs (materials and
labor) decreased by $3.2 million, from $5.1 million for 2004 to $1.9 million for
2005. Engineering expense decreased by $205,000 from $661,000 for 2004 to
$456,000 for 2005. Lastly, of the cost of goods sold,
10
manufacturing overhead decreased by $56,000 from $1.71 million for 2004 to $1.66
million for 2005. Additional details of these changes in cost of sales for the
first quarters of fiscal 2004 and 2005 are as follows:
- Direct materials expense decreased from $1.1 million for 2004 to $0.4
million for 2005 and decreased as a percent of sales from 13.4% to 8.8%.
This decrease was largely due to lower contract volume requirements and
backlog mix during 2005 as compared to 2004. Outside services expense
decreased from $2.4 million for 2004 to $259,000 for 2005 and as a
percent of sales from 28.8% to 5.6%. This decrease was largely due to
the Company incurring expense related to its outsourced revenue during
the first quarter of 2004. The balance of the outside services expense
decrease was due to lower sales volumes and corresponding decreases in
outsourcing certain machining, die patterns, laser cutting, heat treat
and outside design services.
- Direct labor expense decreased from $1.6 million for 2004 to $1.3
million for 2005. However, as a percent of sales, direct labor increased
from 18.9% to 27.7%. This change was a result of the Company incurring a
19% decrease in direct labor hours, from 75,000 hours in 2004 to 61,000
in 2005. Of the total direct labor expense, regular or straight time
decreased by $263,000 however as a percent of sales, increased from
12.7% for 2004 to 17.5% for 2005 due to decreased sales volume. Overtime
expense decreased from $515,000 for 2004 to $467,000 for 2005, however
as a percent of sales, increased from 6.2% for 2004 to 10.2% for 2005.
- Engineering expense decreased from $660,000, 7.9% of sales, for 2004
to $456,000, 10.0% of sales, for 2005. This decrease was due to the
Company's decrease in awarded contracts and the resulting decrease in
the number of engineering personnel necessary to fulfill the design and
project management portions of the Company's current contract backlog.
- Manufacturing overhead was $1.66 million or 36.5% of sales for 2005 as
compared to $1.71 million or 20.6% of sales for 2004. During 2005,
decreases in manufacturing overhead were largely due to a $71,000
decrease in indirect labor and payroll tax expense, a $28,000 decrease
in medical insurance premiums and a $17,000 decrease in building rent
expense. These decreases were offset by increases of $42,000 in
machinery repair and maintenance and $34,000 in perishable tooling
expense. The increase of approximately 15.9% of manufacturing overhead,
as a percent of sales, was largely due to lower overhead absorption from
the decrease in sales volumes.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense increased
from $403,000 for the first quarter of 2004 to $579,000 for 2005. As a percent
of sales, selling and administrative expense increased from 4.8% for 2004 to
12.7% for 2005 due to the lower sales volume. The largest selling and
administrative expense increases included $60,000 in travel expenses, $49,000 in
legal and professional expenses, $34,000 in salaries and wages and $16,000 in
public company costs.
INTEREST EXPENSE. Interest expense increased from $209,000 for 2004 to $393,000
for 2005. This increase was largely due to the Company's increased debt levels
during the first quarter of 2005 as compared to 2004. These increases include
$3.0 million of subordinated debt issued in the fourth quarter of fiscal 2004.
In addition, the interest rates on the revolver and certain term debt increased
during the first quarter of fiscal 2005.
FEDERAL INCOME TAXES
For the three months ended November 30, 2004, the Company recorded a valuation
allowance of approximately $158,000 to offset the income tax benefit. For the
three months ended November 30, 2003, the Company recorded a reduction in the
valuation allowance of approximately $81,000 to offset the income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended November 30, 2004, the Company's cash provided by
operating activities was $2.0 million. This largely resulted from a decrease of
$3.7 million in account receivables, a $807,000 increase in contracts in process
and a $993,000 decrease in accounts payable. From investing activities, the
Company incurred
11
an increase in other assets (cash surrender value of life insurance policies) of
$20,000 and $230,000 in additions to property, plant and equipment. The Company
used $748,000 to reduce the revolving line of credit and $162,000 to reduce
other debt.
The Company's total bank debt as of November 30, 2004, is $14.8 million, all of
which is classified as short-term debt. As of November 30, 2004, the Company was
in default of its loan covenants with its lenders. As a result the Company has
negotiated a $5.0 million Revolving Line of Credit until January 28, 2005,
thereafter such amount reduces to $4.0 million. The Revolving Line of Credit has
a balance outstanding of approximately $4.6 million ,as of January 3, 2005. The
Company also has term notes with an aggregate outstanding balance of $1,716,971,
expiring March 15, 2005. The Revolving Line of Credit bears interest at the
bank's prime rate plus 4.0 percent (an effective rate of 9.0% at November 30,
2004) and the term notes bears interest at bank's prime rate plus 4.25 percent
(an effective rate of 9.25% at November 30, 2004). The Company also has two
subordinated debt notes payable totaling $4,008,124 which includes $1,008,124
bearing interest at 11% and $3,000,000 bearing interest at 14% plus deferred
interest of 6%.
The Company believes that the revolving line of credit and the funds generated
from operations, will be sufficient to cover anticipated cash needs through
fiscal 2005. However, depending on the Company's primary lenders willingness to
extend the due date of the facility as well as the level of future sales, terms
of such sales, financial performance and cash flow of existing contracts, such
financing may not be sufficient to support operations. Therefore, the Company
may be required to seek additional sources of funding.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Our management, with the
participation of our principal executive officer and principal financial
officer, has evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based on such evaluation,
our principal executive officer and principal financial officer have concluded
that as of such date, our disclosure controls and procedures were designed to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in applicable SEC rules and forms and were
effective.
Changes in Internal Control Over Financial Reporting. There was no change in our
internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) that occurred during the period covered by
this Quarterly Report on Form 10-Q that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10(jj) Forebearance Agreement between Registrant and Comerica Bank, dated
January 6, 2005
31.1 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 Sec. 906
31.2 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 Sec. 906
32.2 Written Statement of the Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 Sec. 302
(b) Reports on Form 8-K:
None
12
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: January 14, 2005
Riviera Tool Company
/s/ Kenneth K. Rieth
----------------------
Kenneth K. Rieth
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Peter C. Canepa
----------------------
Peter C. Canepa
Chief Financial Officer, Treasurer and
Secretary (Principal Financial and
Accounting Officer)
13
Exhibit Index
No. Description
10(jj) Forebearance Agreement between Registrant and Comerica Bank, dated
January 6, 2005
31.1 Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350 Sec. 906
31.2 Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350 Sec. 906
32.2 Written Statement of the Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350 Sec. 302