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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 February 29, 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
-----
There were 3,774,346 shares of the Registrant's common stock outstanding as of
April 14, 2004.
1
PART I
FINANCIAL INFORMATION
INDEX
Page No.
Item 1. Financial Statements
Balance Sheets as of February 29, 2004 and August 31, 2003........................................ 3
Statements of Operations for the Three and Six Months Ended February 29, 2004 and
February 28, 2003................................................................................ 4
Statements of Cash Flows for the Three and Six Months Ended February 29, 2004 and
February 28, 2003................................................................................ 5
Notes to Financial Statements..................................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................ 11
Item 4. Controls and Procedures........................................................................... 11
PART II
OTHER INFORMATION
INDEX
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to A Vote of Security Holders
Item 6. Exhibits and Reports on Form 8 - K................................................................ 13
Signatures........................................................................................ 14
Certifications
Exhibits
2
RIVIERA TOOL COMPANY
FINANCIAL STATEMENTS
BALANCE SHEETS
FEBRUARY 29, AUGUST 31,
ASSETS 2004 2003
------ --------------------- --------------------
CURRENT ASSETS NOTE (UNAUDITED) (AUDITED)
- -------------- ---- --------------------- --------------------
Cash.................................................................... $ 1,200 $ --
Accounts receivable..................................................... 4,890,489 7,010,039
Costs in excess of billings on contracts in process..................... 2 11,490,012 12,208,666
Inventories............................................................. 248,559 248,559
Prepaid expenses and other current assets............................... 507,706 294,143
----------------- -----------------
Total current assets.......................................... 17,137,966 19,761,407
PROPERTY, PLANT AND EQUIPMENT, NET........................................ 3 12,494,313 13,046,289
PERISHABLE TOOLING........................................................ 623,096 617,722
OTHER ASSETS.............................................................. 347,660 325,198
----------------- -----------------
Total assets.................................................. $ 30,603,035 $ 33,750,616
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
- -------------------
Current portion of long-term debt....................................... 4 $ 4,012,298 $ 638,756
Accounts payable........................................................ 4,481,611 5,020,554
Accrued outsourced contracts payable.................................... 6,548,316 5,903,930
Accrued liabilities..................................................... 754,582 435,896
----------------- -----------------
Total current liabilities..................................... 15,796,807 11,999,136
LONG-TERM DEBT............................................................ 4 954,968 8,400,333
ACCRUED LEASE EXPENSE..................................................... 690,790 640,690
----------------- -----------------
Total liabilities............................................. 17,442,565 21,040,159
----------------- -----------------
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 - 3,379,609 shares at
February 29, 2004 and August 31, 2003................................ 15,115,466 15,115,466
Retained deficit........................................................ (1,954,996) (2,405,009)
----------------- -----------------
Total stockholders' equity.................................... 13,160,470 12,710,457
----------------- -----------------
Total liabilities and stockholders' equity................................ $ 30,603,035 $ 33,750,616
================= =================
See notes to financial statements
3
RIVIERA TOOL COMPANY
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
------------------------------ ---------------------------------
FEB. 29, FEB. 28, FEB. 29, FEB. 28,
2004 2003 2004 2003
------------- -------------- ------------- ---------------
SALES...................................................... $ 8,292,900 $ 8,304,121 $ 16,603,660 $ 12,642,723
COST OF SALES.............................................. 7,452,464 7,434,664 14,913,281 11,479,929
------------- -------------- ------------- ---------------
GROSS PROFIT......................................... 840,436 869,457 1,690,379 1,162,794
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES................................ 505,652 416,712 909,139 738,605
------------- -------------- ------------- ---------------
INCOME FROM OPERATIONS............................... 334,784 452,745 781,240 424,189
TOTAL INTEREST EXPENSE............................... 122,701 221,397 331,228 381,755
------------- -------------- ------------- ---------------
INCOME BEFORE INCOME TAXES ................................ 212,083 231,348 450,012 42,434
------------- -------------- ------------- ---------------
INCOME TAXES .............................................. -- -- -- --
------------- -------------- ------------- ---------------
NET INCOME AVAILABLE FOR
COMMON SHARES............................................. $ 212,083 $ 231,348 $ 450,012 $ 42,434
============= ============== ============= ===============
BASIC AND DILUTED INCOME
PER COMMON SHARE........................................... $ 06 $ .07 $ .13 $ .01
============= ============== ============= ===============
BASIC AND DILUTED
COMMON SHARES OUTSTANDING.................................. 3,379,609 3,379,609 3,379,609 3,379,609
============= ============== ============= ===============
See notes to financial statements
4
RIVIERA TOOL COMPANY
STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
-------------------------------- ----------------------------------
FEB. 29, FEB. 28, FEB. 29, FEB. 28,
2004 2003 2004 2003
------------- -------------- ---------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................... $ 212,083 $ 231,348 $ 450,012 $ 42,434
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization........................ 421,599 460,482 843,198 920,964
(Increase) decrease in assets:
Accounts receivable............................... (1,444,542) (1,915,394) 2,119,551 (6,819,931)
Costs in excess of billings on contracts in
process......................................... (180,343) (106,658) 718,655 2,543,387
Perishable tooling................................ 560 (33,796) (5,374) (33,645)
Prepaid expenses and other current assets......... (236,959) (204,158) (213,563) (193,218)
Increase (decrease) in liabilities:
Accounts payable.................................. 1,209,148 2,693,668 (538,943) 2,576,829
Accrued outsourced contracts payable.............. (182,025) -- 644,386 --
Accrued lease expense............................. 25,050 (8,762) 50,100 (17,523)
Accrued liabilities............................... 86,476 (32,818) 318,686 84,725
--------------- --------------- -------------- ---------------
Net cash provided by/(used in) operating activities........ $ (88,953) $ 1,083,912 $ 4,386,708 $ (895,978)
--------------- --------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in other assets................................. -- -- (22,462) (22,138)
Additions to property, plant and equipment............... (166,429) (58,122) (291,223) (60,346)
--------------- --------------- -------------- ---------------
Net cash used in investing activities...................... $ (166,429) $ (58,122) $ (313,685) $ (82,484)
--------------- --------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on revolving credit line..... 380,876 (872,730) (3,789,177) (872,730)
Issuance of debt......................................... -- 3,367,948 -- 3,367,948
Principal payments on notes payable to bank ............. (125,494) (3,521,008) (282,646) (3,854,499)
--------------- --------------- -------------- ---------------
Net cash provided by/(used in) financing activities........ $ 255,382 (1,025,790) $ (4,071,823) $ (1,359,281)
--------------- --------------- -------------- ---------------
NET INCREASE/(DECREASE) IN CASH............................ $ -- -- $ 1,200 $ (2,337,743)
CASH -- Beginning of Period................................ 1,200 -- -- 2,337,743
--------------- --------------- -------------- ---------------
CASH - End of Period....................................... $ 1,200 -- $ 1,200 $ --
=============== =============== ============== ===============
See notes to financial statements
5
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 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 1, 2003, for the fiscal year ended August 31, 2003.
The results of operations for the six-month period ended February 29, 2004, may
not be indicative of the results to be expected for the full year.
NOTE 2 - COSTS AND BILLINGS ON CONTRACTS IN PROCESS
Costs and billings on contracts in process are as follows:
FEBRUARY 29, AUGUST 31,
2004 2003
-------------------- ----------------
Costs incurred on contracts in process under the percentage of
completion method...................................................... $ 38,711,151 $ 26,836,205
Estimated gross profit................................................. 4,150,000 3,000,000
-------------------- ----------------
Total.......................................................... 42,861,151 29,836,205
Less progress payments received and progress billings to date.......... (31,381,697) (17,627,539)
Plus costs incurred on contracts in process
under the completed contract method.................................... 10,558 --
-------------------- ----------------
Costs in excess of billings on contracts in process.................... $ 11,490,012 $ 12,208,666
==================== ================
Included in estimated gross profit for February 29, 2004 and August 31, 2003 are
jobs with losses accrued of $2,559,410 and $532,665, respectively.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consist of the following:
FEBRUARY 29, AUGUST 31,
2004 2003
---------------- ------------------
Leasehold improvements.......................................................... $ 1,367,908 $ 1,367,908
Office furniture and fixtures................................................... 168,286 164,417
Machinery and equipment......................................................... 22,410,657 22,369,833
Construction in Process......................................................... 405,120 160,195
Computer equipment and software................................................. 2,353,185 2,351,580
Transportation equipment........................................................ 61,919 61,919
---------------- ------------------
Total cost................................................................. 26,767,075 26,475,852
Accumulated depreciation and amortization....................................... 14,272,762 13,429,563
---------------- ------------------
Net carrying amount........................................................ $ 12,494,313 $ 13,046,289
================ ==================
6
RIVIERA TOOL COMPANY
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 29, 2004
NOTE 4 - LONG-TERM DEBT
The Company's long-term debt, which is subject to certain covenants discussed
below, consists of the following:
FEBRUARY 29, AUGUST 31,
2004 2003
------------------- ------------------
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 $10 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 December 1, 2004, and bears
interest, payable monthly, at 1.0% above the bank's prime rate (as of
February 29, 2004 and August 31, 2003, an effective rate of 5.0%)............ $ 2,193,183 $ 5,982,360
NOTES PAYABLE TO BANKS
----------------------
Note payable to bank, payable in monthly installments of $33,334, plus
interest at the bank's prime rate plus 1.25% (as of February 29, 2004 and
August 31, 2003, an effective rate of 5.25%), due December 1, 2004........... 1,566,667 1,766,667
Subordinated note payable to bank, payable in monthly installments of
$31,000, including interest at 11%, due January 1, 2008...................... 1,207,416 1,290,062
--------------- -----------------
Total debt........................................................ 4,967,266 9,039,089
Less current portion of long-term debt............................ 4,012,298 638,756
--------------- -----------------
Long-term debt -- Net............................................. $ 954,968 $ 8,400,333
=============== =================
Under the loan agreement, the Company is required to maintain certain levels of
Tangible Net Worth, Debt to Tangible Net Worth and Debt Service Coverage. At
February 29, 2004, the Company was in compliance with these covenants with the
exception of the Debt Service Coverage covenant. The Company has classified all
of its debt with its primary lender as current as the existing loan agreement
expires December 1, 2004. The Company is currently renegotiating its credit
facility with its primary lender to extend the maturity date as well as increase
the revolving working capital credit line facility.
NOTE 5 -- SUBSEQUENT EVENT
On March 16, 2004, the Company entered into a Securities Purchase Agreement
("SPA") with four accredited investors. The Company issued a total of 394,737
shares of unregistered Common Stock for $1,500,000 ($3.80 per share), plus
Series B warrants for the purchase of up to 263,158 additional shares of Common
Stock at $3.80 per share, for a potential additional investment of $1,000,000.
The Series B Warrants are exercisable commencing March 16, 2004 through the
earlier of the six-month anniversary of the earlier of the date of the effective
registration statement or September 16, 2005. Additionally, the investors will
receive Series A warrants providing 80% coverage of the initial 394,737 shares,
with an exercise price of $5.07 per share for the first half of the warrants,
and $5.53 for the second half. The Company received net proceeds at the closing
in the amount of $1,480,000, after deducting certain legal fees and expenses
reimbursed to Bluegrass. The Company paid a finder's fee of $105,000 and issued
warrants to purchase 10,000 shares with an exercise price of $5.07 per share and
warrants to purchase 10,000 shares with an exercise price of $5.53 per share to
Granite Financial Group, Inc. as a fee in connection with the transaction. The
funds received under the SPA will be used for working capital and debt
reduction.
7
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 For The Six Months
Ended Ended
----------------------------
Feb. 29, Feb. 28, Feb. 29, Feb. 28,
2004 2003 2004 2003
------------- ----------- ----------- ------------
SALES................................................... 100.0% 100.0% 100.0% 100.0%
COST OF SALES........................................... 89.9% 89.5% 89.8% 90.8%
------------- ----------- ----------- -------------
GROSS PROFIT............................... 10.1% 10.5% 10.2% 9.2%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE............. 6.1% 5.0% 5.5% 5.8%
------------- ----------- ----------- -------------
INCOME FROM OPERATIONS.................... 4.0% 5.5% 4.7% 3.4%
TOTAL INTEREST EXPENSE ................................. 1.4% 2.7% 2.0% 3.1%
INCOME BEFORE INCOME TAXES.............................. 2.6% 2.8% 2.7% 0.3%
INCOME TAXES ........................................... -- -- -- --
------------- ----------- ----------- -------------
NET INCOME.................................. 2.6% 2.8% 2.7% 0.3%
============= =========== =========== =============
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.
8
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 29, 2004 TO THE THREE MONTHS ENDED
FEBRUARY 28, 2003.
REVENUES - Revenues for each of the three months ended February 28, 2003 and
February 29, 2004 totaled $8.3 million. The Company is currently completing
significant tooling programs for both the Mercedes-Benz M Class sports utility
vehicle and the new "crossover" vehicle. The Company's customer for these
vehicles is the Tier 1 supplier to Mercedes-Benz for these particular vehicles.
For a portion of these tooling systems the Company is performing engineering
services and manages certain die manufacturing subcontracted by the Company, for
which the Company is responsible for the engineering and performance of these
tools.
The Company's backlog of awarded contracts, which are all believed to be firm,
was approximately $16.6 million and $32.7 million as of February 29, 2004 and
February 28, 2003, respectively. The Company expects all backlog contracts will
be reflected in sales during fiscal years ending August 31, 2004 and 2005.
Despite the backlog, the Company continues to see a general "softness" in the
overall domestic automotive tooling industry. The Company believes that such
should improve in the latter part of 2004 as a result of the domestic automakers
apparent commitment to increasing future new model restyling. In addition, the
Company is and has quoted on contracts in which the timing of the release of
such contracts is not established.
COST OF SALES -- Total cost of goods sold were $7.5 million for the second
quarter of fiscal 2004 and $7.4 million for fiscal 2003, and as a percent of
sales increased slightly from 89.5% for 2003 to 89.9% for 2004. Direct costs
(materials and labor) decreased by $163,000, from $5.1 million for 2003 to $5.0
million for 2004. Engineering expense increased by $111,000 from $584,000 for
2003 to $695,000 for 2004. Lastly, of the cost of goods sold, manufacturing
overhead increased by $70,000 from $1.7 million for 2003 to $1.8 million for
2004. Additional details of these changes in cost of sales for the second
quarters of fiscal 2003 and 2004 are as follows:
- Direct materials expense was $1.6 million for both second quarters of
2003 and 2004. Outside services expense decreased from $2.1 million for
2003 to $1.7 million for 2004 and as a percent of sales from 25.5% to
20.2%. This decrease was largely due to the Company incurring $1.2 million
less in expense related to its outsourced revenue in the second quarter of
2004. The balance of the outside services expense increased from $1.0
million to $1.8 million as a result of the Company outsourcing certain
manufacturing processes. This outsourcing is a result of the Company
attempting to meet customer delivery dates while incorporating significant
numbers of customer engineering changes. These outsourced services largely
consist of machining and laser cutting services.
- Direct labor expense increased from $1.4 million for 2003 to $1.7 million
for 2004 and as a percent of sales increased from 17.2% to 20.4%. This
change was a result of the Company incurring a 13% increase in direct labor
hours, from 75,000 hours in 2003 to 85,000 in 2004. Of the total direct
labor expense, regular or straight time increased by $150,000 and as a
percent of sales increased from 10.9% for 2003 to 12.7% for 2004. Overtime
expense increased from $525,000 for 2003 to $639,000 for 2004, as a percent
of sales, increasing from 6.3% for 2003 to 7.7% for 2004 as a result of the
Company increasing overtime hours while attempting to meet customer
delivery dates while incorporating a high number of customer engineering
changes to the tooling.
- Engineering expense increased from $584,000, 7.0% of sales, for 2003 to
$695,000, 8.4% of sales, for 2004. This increase was due to the Company's
level of engineering personnel staffing required to fulfill the design and
project management portions of contracts.
- Manufacturing overhead was $1.7 million or 20.5% of sales for 2003 as
compared to $1.8 million or 21.3% of sales for 2004. During 2004, increases
in manufacturing overhead were largely due to increases in medical
insurance premiums, increases in machinery repairs and maintenance
supplies, and increases in payroll tax expense.
9
SELLING AND ADMINISTRATIVE EXPENSE - Selling and administrative expense
increased from $417,000 for the second quarter of 2003 to $506,000 for 2004. As
a percent of sales, selling and administrative expense increased from 5.0% for
2003 to 6.1% for 2004. The largest selling and administrative expense increases
were in salaries and wages and public company costs.
INTEREST EXPENSE - Interest expense decreased from $221,000 for 2003 to $123,000
for 2004. This decrease was largely due to the lower levels of debt during the
comparative periods.
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 29, 2004 TO THE SIX MONTHS ENDED
FEBRUARY 28, 2003.
REVENUES -- Revenues for the six months ended February 29, 2004 totaled $16.6
million as compared to $12.6 million for the six months ended February 28, 2003,
an increase of 31%. The Company is currently completing significant tooling
programs for the both the Mercedes-Benz M Class sports utility vehicle and the
new "crossover" vehicle. The Company's customer for these vehicles is the Tier 1
supplier to Mercedes-Benz for these particular vehicles. For a portion of these
tooling systems the Company is performing engineering services and manages
certain die manufacturing subcontracted by the Company, for which the Company is
responsible for the engineering and performance of these tools. For the six
months ended February 29, 2004, the Company had incurred approximately 161,000
shop floor hours as compared to 130,000 during the same period of 2003, an
increase of 31,000 hours or 24%.
COST OF SALES -- Cost of goods sold increased from $11.5 million for the six
months ended February 28, 2003 to $14.9 million for the six months ended
February 29, 2004, however as a percent of sales decreased slightly from 90.8%
for 2003 to 89.8% for 2004. Direct costs (materials and labor) increased by $2.9
million, from $7.1 million for 2003 to $10.1 million for 2004. Engineering
expense increased by $300,000 from $1.1 million for 2003 to $1.4 million for
2004. Lastly, of the cost of goods sold, manufacturing overhead increased by
$200,000 from $3.3 million for 2003 to $3.5 million for 2004. Additional details
of these changes in cost of sales for the six months ended February 28, 2003 and
February 29, 2004 are as follows:
- Direct materials expense increased from $2.2 million to $2.7 million for
the first two quarters of 2003 and 2004, respectively. Outside services
expense increased from $2.5 million for 2003 to $4.1 million for 2004 and
as a percent of sales from 19.7% to 24.6%. This increase was largely due to
the Company outsourcing certain manufacturing processes in an attempt to
meet customer delivery dates while incorporating a high number of customer
engineering changes to the tooling. These services largely consist of
machining and laser cutting services (a $1.0 million increase).
- Direct labor expense increased from $2.4 million for 2003 to $3.3 million
for 2004 and as a percent of sales increased from 19.3% to 19.7%. This
change was a result of the Company incurring a 24% increase in direct labor
hours, from 130,000 hours in 2003 to 161,000 in 2004. Of the total direct
labor expense, regular or straight time increased by $470,000 and as a
percent of sales decreased from 13.0% for 2003 to 12.7% for 2004. Overtime
expense increased from $803,000 for 2003 to $1,154,000 for 2004, as a
percent of sales, increasing from 6.4% for 2003 to 6.9% for 2004 as a
result of the Company attempting to meet customer delivery dates while
incorporating a high number of customer engineering changes to the tooling.
- Engineering expense increased from $1.1 million, 8.4% of sales, for 2003
to $1.4 million, 8.2% of sales, for 2004. This increase was due to the
Company's level of engineering personnel staffing required to fulfill the
design and project management portions of contracts.
- Manufacturing overhead was $3.3 million or 26.0% of sales for 2003 as
compared to $3.5 million or 21.0% of sales for 2004. During 2004, increases
in manufacturing overhead were largely due to increases in medical
insurance premiums and increases in payroll tax expense.
10
SELLING AND ADMINISTRATIVE EXPENSE - Selling and administrative expense
increased from $739,000 for the first two quarters of 2003 to $909,000 for 2004.
As a percent of sales, selling and administrative expense decreased from 5.8%
for 2003 to 5.5% for 2004. The largest selling and administrative expense
increases were in salaries and wages, public company costs and State of Michigan
Single Business Tax expense.
INTEREST EXPENSE - Interest expense decreased from $382,000 for 2003 to $331,000
for 2004. This decrease was largely due to the lower levels of debt during the
comparative periods.
FEDERAL INCOME TAXES
For the three and six months ended February 29, 2004, the Company recorded a
reduction in the valuation allowance of approximately $72,000 and $153,000,
respectively, to offset the income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended February 29, 2004, the Company's cash provided by
operating activities was $4.4 million. This largely resulted from a decrease of
$2.1 million in receivables and a $719,000 decrease in contracts in process.
From investing activities, the Company incurred an increase in other assets
(cash surrender value of life insurance policies) of $22,000 and $291,000 in
additions to property, plant and equipment. The Company used $3.8 million to
reduce the revolving line of credit and $283,000 to reduce long-term debt.
The Company believes that the unused portion of the revolving bank working
capital credit line, receipt of progress payments from the Company's major
customer, equity raised subsequent to the quarter end and the funds generated
from operations will be sufficient to cover anticipated cash needs through
fiscal 2004. However, depending on the level of future sales, and the terms of
such sales, an expanded credit line or other financial instruments may be
necessary to finance increases in trade accounts receivable and contracts in
process. The Company believes it will be able to obtain such expanded credit
line and/or other financing, if required.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this Quarterly Report on
Form 10-Q, an evaluation was carried out under the supervision and with the
participation of the Company's management, including the Chief Executive Officer
(the "CEO") and Chief Financial Officer ("CFO"), of the effectiveness and design
of disclosure controls and procedures used to prepare consolidated financial
statements. Based on that evaluation, the CEO and CFO have concluded the
disclosure controls and procedures designed to ensure that information required
to be disclosed by the Company in reports filed or to be filed with the SEC are
adequate and are operating in an effective manner. While the CEO and CFO believe
that the Company's existing disclosure controls and procedures have been
effective to accomplish its objectives, the CEO and CFO intend to examine,
refine and formalize our disclosure controls and procedures and monitor ongoing
developments.
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the most recent evaluation.
Notwithstanding the foregoing, there can be no assurance that the Company's
disclosure controls and procedures will detect or uncover all failures of
persons within the Company and its consolidated subsidiaries to disclosure
material information otherwise required to be set forth in the Company's
periodic reports.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 3, 2004 the Company received a summons from the U.S.
Bankruptcy Court, Northern District of Illinois regarding National Steel
Corporation, which filed for Chapter XI Bankruptcy on March 6, 2002. The
National Steel Corporation Trust brings this action in an attempt to collect
certain purported preferential transfers made to the Company total $207,710.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 16, 2004, we entered into a securities purchase agreement with the
following accredited investors pursuant to which:
- we sold and Iroquois Capital, LP purchased 52,632 shares of our common
stock at $3.08 per share;
- we sold and Bluegrass Growth Fund LP purchased 131,579 shares of our
common stock at $3.08 per share;
- we sold and Capital Ventures International purchased 131,579 shares of
our common stock at $3.08 per share; and
- we sold and Vertical Ventures, LLC purchased 78,947 shares of our
common stock at $3.08 per share.
In addition, at the closing of the March 16, 2004 private placement we
issued and delivered the following warrants to purchase shares of our common
stock:
SELLING SECURITYHOLDER $3.80 WARRANT $5.07 WARRANT $5.53 WARRANT
---------------------- ------------- ------------- -------------
Iroquois Capital 35,088 21,053 21,053
Bluegrass 87,719 52,632 52,632
Capital Ventures 87,719 52,632 52,632
Vertical Ventures 52,632 31,579 31,579
TOTAL . . . . 263,158 157,896 157,896
We received net proceeds at the closing in the amount of $1,480,000, after
deducting certain legal fees and expenses reimbursed to Bluegrass. We also paid
a finder's fee of $105,000 and issued warrants to purchase 10,000 shares with an
exercise price of $5.07 per share and warrants to purchase 10,000 shares with an
exercise price of $5.53 per share to Granite Financial Group, Inc. as a fee in
connection with the transaction.
The $5.07 and $5.53 warrants are exercisable for a five-year period
commencing September 16, 2004 and the $3.80 warrants are exercisable commencing
March 16, 2004 through the earlier of the six-month anniversary of the earlier
of the date of the effective registration statement or September 16, 2005. Each
of the warrants provides for adjustment in the price and number of warrant
shares:
- if we, at any time while the warrants are unexpired and not exercised
in full, pay a dividend in shares of our common stock or make a
distribution in shares of our common stock to holders of our
outstanding common stock;
- if we, at any time while the warrants are unexpired and not exercised
in full, subdivide outstanding shares of our common stock into a
greater number of shares;
- if we, at any time while the warrants are unexpired and not exercised
in full, combine outstanding shares of our common stock into a smaller
number of shares of common stock; and
- if we, at any time while the warrants are unexpired and not exercised
in full, issue any shares of our capital stock in a reclassification
of our common stock.
In addition, for a period of one year from the initial exercise date, the
exercise price of each of the $5.07 and $5.53 warrants shall be adjusted for any
dilutive issuances whereby the exercise price shall be reduced to equal the per
share offering price of such dilutive issuance.
12
On March 31, 2004, the Company received approval from the American Stock
Exchange for listing an additional 993,687 shares of its common stock.
Right of First Refusal
Iroquois Capital, Bluegrass, Capital Ventures and Vertical Ventures have
been granted a right of first refusal for any or all shares in a proposed sale
by us of our securities in a private placement transaction exempt from
registration under the Securities Act until twelve months after the date of this
prospectus. Such right of first refusal shall be held open for five trading days
from the date of the initial notice of the proposed offer to sell the
securities.
4.99% Limitation
Under the terms of our securities purchase agreement with the investors
listed above, the number of shares to be obtained upon exercise of warrants
cannot exceed the number of shares that, when combined with all other shares of
common stock and securities then owned by each respective investor, would result
in such investor owning more than 4.99% of our outstanding common stock at any
given point of time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of the Company's common
shareholders at its annual shareholders meeting on January 14, 2004.
a. The following directors were elected to serve until the meeting of
shareholders in 2005 and 2006, as indicated, and until their successors are
elected (amounts shown in parentheses represent the number of votes cast for,
against or withheld, and abstentions, respectively):
(i) Kenneth K. Rieth (3,094,274 / 22,133) (Term expiring 2005)
(ii) Thomas H. Highley (3,084,649/ 31,759) (Term expiring 2006)
The following directors of the Company continued until the annual meeting of
shareholders in the year indicated parenthetically and until their successors
are elected:
- Leonard H. Wood (2004) - Dr. Jay S. Baron (2004)
b. Ratification of Selection of Independent Auditors-(amounts shown in
parentheses represent the number of votes cast for, against or withheld, and
abstentions, respectively): (3,092,327 / 18,950 / 5,130)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
31.1 Principal Executive Officer Certification
31.2 Principal Financial Officer Certification
32.1 Written Statement of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350 Sec. 906
32.2 Written Statement of the Chief Financial Officer Pursuant to
18 U.S.C. Section 1350 Sec. 906
(b) Reports on Form 8-K:
Form 8-K filed on January 20, 2004, Item 5-Other Events
Form 8-K filed on March 22, 2004, Item 5-Other Events
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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: April 14, 2004
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)
14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-31.1 Certification of Chief Executive Officer pursuant to Section 302
EX-31.2 Certification of Chief Financial Officer pursuant to Section 302
EX-32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15