UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the quarterly period ended | ||
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
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For the transition period from __________ to __________ | ||
Commission file number:
(Name of registrant as specified in its charter)
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(State or Other Jurisdiction of Organization) |
(IRS Employer Identification Number) |
(Address of principal executive offices)
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(Issuer’s telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Smaller reporting company |
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Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Securities registered under Section 12(b) of the Act:
As of November 9, 2021, the issuer had
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
Form 10-Q
Table of Contents
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Page | |
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3 | |
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PART I.FINANCIAL INFORMATION | |
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Item 1.Financial Statements |
4 |
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4 | |
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5 | |
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6 | |
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7 | |
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8 | |
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9 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 31 |
| Item 4. | Controls and Procedures | 31 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 32 |
| Item 1A. | Risk Factors | 32 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 32 |
| Item 3. | Defaults Upon Senior Securities | 32 |
| Item 4. | Mine Safety Disclosures | 32 |
| Item 5. | Other Information | 32 |
| Item 6. | Exhibits | 32 |
| Signatures | 33 | |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for statements of historical fact, certain information contained herein constitutes forward-looking statements including, without limitation, statements containing the words “believes,” “anticipates,” “intends,” “expects,” and words of similar import, as well as all references to future results. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements of Uniroyal Global Engineered Products, Inc. to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, the following: risks involved in implementing our business strategy, our ability to obtain financing on acceptable terms, competition, our ability to manage growth, pricing and availability of equipment, materials and inventories, performance issues with suppliers, economic growth, the Company’s ability to successfully integrate acquired operations, currency fluctuations, risks of technological change, the effectiveness of cost-reduction plans, our dependence on key personnel, our ability to protect our intellectual property rights, risks of new technology and new products, and government regulation. All forward-looking statements are qualified in their entirety by this cautionary statement, and the Company undertakes no obligation to revise or update any such forward-looking statements to reflect events, developments or circumstances after the date hereof.
Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Uniroyal Global Engineered Products, Inc.
Consolidated Balance Sheets
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(Unaudited) | ||||||||
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ASSETS |
October 3, 2021 |
January 3, 2021 | ||||||
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CURRENT ASSETS | ||||||||
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Cash and cash equivalents |
$ |
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$ |
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Accounts receivable, net |
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Inventories, net |
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Other current assets |
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Related party receivable |
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Total Current Assets |
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PROPERTY AND EQUIPMENT, NET |
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OPERATING LEASE RIGHT-OF-USE ASSETS, NET |
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OTHER ASSETS | ||||||||
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Intangible assets |
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Goodwill |
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Other long-term assets |
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Total Other Assets |
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TOTAL ASSETS |
$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
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CURRENT LIABILITIES | ||||||||
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Checks issued in excess of bank balance |
$ |
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$ |
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Lines of credit |
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Current maturities of long-term debt |
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Current maturities of finance lease liabilities |
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Accounts payable |
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Accrued expenses and other liabilities |
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Current maturities of related party finance lease liabilities |
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Current portion of postretirement benefit liability - health and life |
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Total Current Liabilities |
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LONG-TERM LIABILITIES | ||||||||
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Long-term debt, less current portion |
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Finance lease liabilities, less current portion |
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Operating lease liabilities, less current portion |
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Related party finance lease liabilities, less current portion |
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Long-term debt to related parties |
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Postretirement benefit liability - health and life, less current portion |
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Other long-term liabilities |
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Total Long-Term Liabilities |
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Total Liabilities |
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STOCKHOLDERS' EQUITY | ||||||||
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Preferred units, Series A UEP Holdings, LLC, |
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Preferred units, Series B UEP Holdings, LLC, |
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Preferred stock, Uniroyal Global (Europe) Limited, |
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Common stock, |
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Additional paid-in capital |
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Accumulated deficit |
( |
) |
( |
) | ||||
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Accumulated other comprehensive loss |
( |
) |
( |
) | ||||
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Total Stockholders' Equity |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
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$ |
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See accompanying notes to the consolidated financial statements.
Uniroyal Global Engineered Products, Inc.
Consolidated Statements of Operations
(Unaudited)
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Three Months Ended |
Nine Months Ended | |||||||||||||||
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October 3, 2021 |
October 4, 2020 |
October 3, 2021 |
October 4, 2020 | |||||||||||||
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NET SALES |
$ |
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$ |
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$ |
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$ |
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COST OF GOODS SOLD |
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Gross Profit |
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OPERATING EXPENSES: | ||||||||||||||||
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Selling |
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General and administrative |
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Research and development |
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OPERATING EXPENSES |
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Operating Loss |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
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OTHER INCOME (EXPENSE): | ||||||||||||||||
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Interest expense |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
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Funding from Paycheck Protection Program |
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Other (expense) income |
( |
) |
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( |
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Net Other (Expense) Income |
( |
) |
( |
) |
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LOSS BEFORE TAX BENEFIT |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
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TAX BENEFIT |
( |
) |
( |
) |
( |
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( |
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NET (LOSS) INCOME |
( |
) |
( |
) |
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( |
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Extinguishment of preferred stock dividend payable |
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Preferred stock dividend |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
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NET INCOME (LOSS) ALLOCABLE TO COMMON SHAREHOLDERS |
$ |
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$ |
( |
) |
$ |
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$ |
( |
) | ||||||
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EARNINGS (LOSS) PER COMMON SHARE: | ||||||||||||||||
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Basic and Diluted |
$ |
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$ |
( |
) |
$ |
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$ |
( |
) | ||||||
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WEIGHTED AVERAGE SHARES OUTSTANDING: | ||||||||||||||||
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Basic and Diluted |
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See accompanying notes to the consolidated financial statements.
Uniroyal Global Engineered Products, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
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Three Months Ended |
Nine Months Ended | |||||||||||||||
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October 3, 2021 |
October 4, 2020 |
October 3, 2021 |
October 4, 2020 | |||||||||||||
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NET (LOSS) INCOME |
$ |
( |
) |
$ |
( |
) |
$ |
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$ |
( |
) | |||||
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OTHER COMPREHENSIVE (LOSS) INCOME: | ||||||||||||||||
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Foreign currency translation adjustment |
( |
) |
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( |
) |
( |
) | |||||||||
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OTHER COMPREHENSIVE (LOSS) INCOME |
( |
) |
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( |
) |
( |
) | |||||||||
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COMPREHENSIVE (LOSS) INCOME |
( |
) |
( |
) |
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( |
) | |||||||||
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Extinguishment of preferred stock dividend payable |
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Preferred stock dividend |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
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COMPREHENSIVE INCOME (LOSS) TO COMMON SHAREHOLDERS |
$ |
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$ |
( |
) |
$ |
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$ |
( |
) | ||||||
See accompanying notes to the consolidated financial statements.
Uniroyal Global Engineered Products, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
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Additional |
Accumulated Other |
Total | ||||||||||||||||||||||||||||||||||||||||||||||
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UEPH Series A |
UEPH Series B |
UGEL Preferred |
Common Stock |
Paid In |
Accumulated |
Comprehensive |
Stockholders' | |||||||||||||||||||||||||||||||||||||||||
|
Units |
Amount |
Units |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Loss |
Equity | |||||||||||||||||||||||||||||||||||||
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For the Three Months Ended October 4, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Balance July 5, 2020 |
|
$ |
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|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
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Net loss |
- |
- |
- |
- |
- |
- |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||||||||||||||||||||||
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Other comprehensive income |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
| ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividend |
- |
- |
- |
- |
- |
- |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||||||||||||||||||||||
|
Balance October 4, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
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For the Three Months Ended October 3, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance July 4, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
| ||||||||||||||||||||||||||
|
Net income |
- |
- |
- |
- |
- |
- |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||||||||||||||||||||||
|
Other comprehensive loss |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
( |
) |
( |
) | ||||||||||||||||||||||||||||||||||
|
Extinguishment of preferred stock dividend payable |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- |
| ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividend |
- |
- |
- |
- |
- |
- |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||||||||||||||||||||||
|
Balance October 3, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
| ||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||
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For the Nine Months Ended October 4, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Balance December 29, 2019 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
| ||||||||||||||||||||||||||
|
Net income |
- |
- |
- |
- |
- |
- |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||||||||||||||||||||||
|
Other comprehensive loss |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
( |
) |
( |
) | ||||||||||||||||||||||||||||||||||
|
Preferred stock dividend |
- |
- |
- |
- |
- |
- |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||||||||||||||||||||||
|
Adjustment for a 1-for-5 reverse stock split |
- |
- |
- |
- |
- |
- |
- |
( |
) |
|
- |
- |
- | |||||||||||||||||||||||||||||||||||
|
Balance October 4, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
| ||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||||||||||
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| ||||||||||||||||||||||||||||||||||||||||||||||||
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For the Nine Months Ended October 3, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Balance January 3, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
| ||||||||||||||||||||||||||
|
Net income |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- |
| ||||||||||||||||||||||||||||||||||||
|
Other comprehensive income |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
( |
) |
( |
) | ||||||||||||||||||||||||||||||||||
|
Extinguishment of preferred stock dividend payable |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
- |
| ||||||||||||||||||||||||||||||||||||
|
Preferred stock dividend |
- |
- |
- |
- |
- |
- |
- |
- |
- |
( |
) |
- |
( |
) | ||||||||||||||||||||||||||||||||||
|
Balance October 3, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
| ||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
Uniroyal Global Engineered Products, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
|
Nine Months Ended | ||||||||
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| ||||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
October 3, 2021 |
October 4, 2020 | ||||||
|
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|
Net income (loss) |
$ |
|
$ |
( |
) | |||
|
Adjustments to reconcile net income to net cash flows from operating activities: | ||||||||
|
Depreciation and amortization |
|
| ||||||
|
Deferred tax benefit |
( |
) |
( |
) | ||||
|
Amortization of debt issuance costs |
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Amortization of intangible assets |
|
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Loss on disposal of property and equipment |
|
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Funding from Paycheck Protection Program recognized as income |
( |
) |
( |
) | ||||
|
Deferred interest on loan from Main Street Lending Program |
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Loss on debt extinguishment |
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|
Noncash lease adjustment |
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|
Changes in assets and liabilities: | ||||||||
|
Accounts receivable |
|
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|
Inventories |
( |
) |
| |||||
|
Other current assets |
( |
) |
( |
) | ||||
|
Related party receivable |
( |
) |
( |
) | ||||
|
Other long-term assets |
|
( |
) | |||||
|
Accounts payable |
|
( |
) | |||||
|
Accrued expenses and other liabilities |
|
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|
Postretirement benefit liability - health and life |
( |
) |
( |
) | ||||
|
Other long-term liabilities |
( |
) |
| |||||
|
Cash (used in) provided by operating activities |
( |
) |
| |||||
|
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|
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
|
Capital expenditures |
( |
) |
( |
) | ||||
|
Payments on life insurance policies, net of proceeds from policy loans |
( |
) |
| |||||
|
Cash used in investing activities |
( |
) |
( |
) | ||||
|
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CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
|
Net change in checks issued in excess of bank balance |
( |
) |
( |
) | ||||
|
Payments on line of credit relating to debt extinguishment |
( |
) |
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|
Advances on line of credit relating to debt extinguishment |
|
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|
Net advances (payments) on lines of credit - other |
|
( |
) | |||||
|
Payments on long-term debt relating to debt extinguishment |
( |
) |
| |||||
|
Payments on long-term debt - other |
( |
) |
( | |||||
|
Proceeds from issuance of long-term debt - Paycheck Protection Program |
|
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Proceeds from issuance of long-term debt - automotive lenders |
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Proceeds from issuance of long-term debt relating to debt extinguishment |
|
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|
Payments for capitalized debt issuance costs |
( |
) |
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|
Payments on finance lease liabilities |
( |
) |
( |
) | ||||
|
Proceeds from finance lease liabilities |
|
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|
Proceeds from related party obligations |
|
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|
Payments on related party obligations |
( |
) |
( |
) | ||||
|
Cash provided by financing activities |
|
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|
Net change in cash and cash equivalents |
( |
) |
| |||||
|
Cash and cash equivalents - beginning of period |
|
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|
Effects of currency translation on cash and cash equivalents |
|
( |
) | |||||
|
| ||||||||
|
CASH AND CASH EQUIVALENTS - END OF PERIOD |
$ |
|
$ |
| ||||
See Note 2 for noncash transactions and supplemental disclosure of cash flow information.
See accompanying notes to the consolidated financial statements.
UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC.
Notes to Consolidated Financial Statements
October 3, 2021
(Unaudited)
1.Basis of Presentation and Summary of Significant Accounting Policies
Uniroyal Global Engineered Products, Inc. (the “Company,” “Uniroyal Global,” “we,” or “us”) owns all of the ownership interests in Uniroyal Engineered Products, LLC (“Uniroyal”), a U.S. manufacturer of textured coatings, and its holding company, UEP Holdings, LLC (“UEPH”), and all of the ordinary common stock of Uniroyal Global (Europe) Limited (“UGEL”) formerly known as Engineered Products Acquisition Limited (“EPAL”), the holding company for Uniroyal Global Limited (“UGL”) formerly Wardle Storeys (Earby) Limited (“Wardle Storeys”), a European manufacturer of textured coatings.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared based upon U.S. Securities and Exchange Commission rules that permit reduced disclosure for interim periods. Therefore, they do not include all information and footnote disclosures necessary for a complete presentation of the Company’s financial position, results of operations and cash flows, in conformity with generally accepted accounting principles. Uniroyal Global filed audited consolidated financial statements as of and for the fiscal years ended January 3, 2021 and December 29, 2019 which included all information and notes necessary for such complete presentation in conjunction with its 2020 Annual Report on Form 10-K.
The results of operations for the interim period ended October 3, 2021 are not necessarily indicative of the results to be expected for any future period or the entire fiscal year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended January 3, 2021, which are contained in the Company’s 2020 Annual Report on Form 10-K.
The Company and its subsidiaries use a 52/53-week fiscal year ending on the Sunday nearest to December 31. The current year ending January 2, 2022 is a 52-week year whereas the prior year ended January 3, 2021 was a 53-week year. The Company’s U.K. subsidiaries use the calendar year end of December 31. The activity of the U.K. subsidiaries that occurs on the days that do not coincide with the Company’s year-end is not material. Both the three months ended October 3, 2021 and October 4, 2020 were 13-week periods while the nine months ended October 3, 2021 was a 39-week period and the nine months ended October 4, 2020 was a 40-week period.
The accompanying unaudited interim consolidated financial statements contain all adjustments (consisting of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the Company’s financial position as of October 3, 2021 and the results of operations, comprehensive income (loss) and cash flows for the interim periods ended October 3, 2021 and October 4, 2020.
The unaudited interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company uses the U.S. dollar as the reporting currency for financial reporting. The financial position and results of operations of the Company’s U.K.-based operations are measured using the British Pound Sterling as the functional currency. See Note 4 – “Foreign Currency Translation” for additional discussion.
For purposes of comparability, certain reclassifications have been made to amounts previously reported to conform with the current period presentation.
Significant Accounting Policies
For a discussion of Uniroyal Global’s significant accounting policies, refer to Note 1 – “Basis of Presentation and Summary of Significant Accounting Policies” to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 3, 2021.
Coronavirus
The current coronavirus pandemic (“COVID-19”) has had an impact on markets the Company serves and its operations. Since COVID-19 is a continually evolving situation, the Company cannot predict the long-term impact it will have on the economy or the Company’s business. The impact could have a material adverse effect on the Company’s financial position, results of operations and cash flows, which may require the Company to obtain additional financing. The Company continues to pursue supplementary cash flow opportunities, as discussed briefly below and in more detail in Notes 8 – 10.
Through the Paycheck Protection Program (“PPP”) administered by the U.S. Small Business Administration (“SBA”) under the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”), the Company’s U.S. operations received $
For the U.K. operations, during the third quarter of 2021 and 2020, the Company recorded reimbursed costs of approximately $
Also for the U.K. operations, in June 2021 its bank lending facilities with Lloyds Bank Commercial Finance Limited (“Lloyds”) were refinanced with PNC Business Credit (“PNC”). PNC provided the Company additional availability by expanding its borrowing base to include eligible equipment. See Notes 8 and 9 for further discussion.
Additionally, quarterly preferred dividend payments on UEPH Series A and Series B preferred units and UGEL preferred stock (collectively “preferred shares”) were deferred beginning with the three months ended December 29, 2019 through the three months ended October 3, 2021. During the third quarter of 2021, the owners of these preferred shares (“preferred shareholders”) agreed to an amendment to the documents that govern the dividends (“amended documents”) whereby the accrued dividends were forgiven. In addition, under the amended documents the preferred shareholders are no longer entitled to a quarterly dividend until such time as the Company declares a dividend payable.
The Company accounted for the dividend forgiveness as an extinguishment of debt between related parties per Accounting Standards Codification (“ASC”) 470, “Debt”. As a result, the total balance of accrued dividends of approximately $
Legal Proceedings
On October 1, 2020, the Health and Safety Executive (“HSE”), the government agency responsible for the enforcement of health and safety law in the U.K., charged our U.K. subsidiary, Uniroyal Global Limited, with an offense under the Health and Safety at Work etc. Act 1974 arising from an August 2019 incident in which an employee was injured in the course of his employment.
The Company fully cooperated with the HSE investigation and negotiated a plea based on legal advice provided to it. Per this legal advice, the Company believed that £
In April 2021, a fine of £
2.Noncash Transactions and Supplemental Disclosure of Cash Flow Information
Quarterly preferred dividend payments on UEPH Series A and Series B preferred units and UGEL preferred stock (collectively “preferred shares”) were deferred beginning with the three months ended December 29, 2019 through the three months ended October 3, 2021. During the third quarter of 2021, the owners of these preferred shares agreed to an amendment to the documents that govern the dividends whereby the accrued dividends were forgiven. As a result, the total balance of accrued dividends of approximately $
For the nine months 2021, the Company made payments of $
The following is supplemental disclosure of cash paid for the nine months ended:
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October 3, 2021 |
October 4, 2020 | |||||||
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Interest |
$ |
|
$ |
| ||||
3.Fair Value of Financial Instruments
The Company’s short-term financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and lines of credit. The Company adjusts the carrying value of financial instruments denominated in other currencies such as cash, accounts receivable, accounts payable and lines of credit using the appropriate exchange rates at the balance sheet date. The Company believes that the carrying values of these short-term financial instruments approximate their estimated fair values.
The fair value of the Company’s long-term debt is estimated based on current rates for similar instruments with the same remaining maturities. In determining the current interest rates for similar instruments, the Company takes into account its risk of nonperformance. The Company believes that the carrying value of its long-term debt approximates its estimated fair value.
The Company uses foreign currency exchange contracts which are recorded at their estimated fair values in the accompanying consolidated balance sheets. The fair values of the currency exchange contracts are based upon observable market transactions of spot and forward rates.
For the nine months ended October 3, 2021, there have been no changes in the application of valuation methods applied to similar assets and liabilities.
4.Foreign Currency Translation
The financial position and results of operations of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of operations denominated in foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date, while the capital accounts are translated at the historical rate for the date they were recognized. Revenues and expenses are translated at the weighted average exchange rates during the reporting period. The resulting translation gains and losses on assets and liabilities are recorded in accumulated other comprehensive loss and are excluded from net income until realized through a sale or liquidation of the investment. Transaction gains and losses generated from the remeasurement of assets and liabilities denominated in currencies other than the functional currency of the Company’s foreign operations are included in other income (expense) in the accompanying consolidated statements of operations.
5.Inventories
Inventories consist of the following:
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October 3, 2021 |
January 3, 2021 | |||||||
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Raw materials |
$ |
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$ |
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Work-in-process |
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Finished goods |
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|
| |||||||
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Less: Allowance for inventory obsolescence |
( |
) |
( |
) | ||||
|
| ||||||||
|
Total Inventories, net |
$ |
|
$ |
| ||||
6.Other Long-term Assets
Other long-term assets consist of the following:
|
October 3, 2021 |
January 3, 2021 | |||||||
|
| ||||||||
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Deferred tax asset, net |
$ |
|
$ |
| ||||
|
Life insurance policies, net of policy loans |
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Debt issuance costs |
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Other |
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Total Other Long-term Assets |
$ |
|
$ |
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7.Other Long-term Liabilities
Other long-term liabilities consist of the following:
|
October 3, 2021 |
January 3, 2021 | |||||||
|
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|
Deferred tax liability |
$ |
|
$ |
| ||||
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Other |
|
| ||||||
|
| ||||||||
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Total Other Long-term Liabilities |
$ |
|
$ |
| ||||
8.Lines of Credit
The Company's Uniroyal subsidiary has available a $
The outstanding balance on the Uniroyal Line of Credit was $
In June 2021, UGL’s bank lending facilities with Lloyds Bank Commercial Finance Limited (“Lloyds”), including its revolving line of credit (“Old UGL Line of Credit”), were refinanced with PNC Business Credit (“PNC”). PNC provided the Company additional availability by expanding its borrowing base to include eligible equipment. This transaction was accounted for as a debt extinguishment per ASC 470, “Debt”, under which the existing Lloyds debt was derecognized and the new PNC debt was recorded at fair value. A loss of £
UGL has available £
The outstanding balance on the New UGL Line of Credit was £
9.Long-term Debt
Long-term debt consists of the following:
|
Interest Rate |
October 3, 2021 |
January 3, 2021 | ||||||||
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Notes Payable | ||||||||||
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Wells Fargo Capital Finance, LLC |
|
$ |
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$ |
| |||||
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Lloyds Bank Commercial Finance Limited (1) |
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Lloyds Bank Commercial Finance Limited (1) |
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Automotive lenders (2) |
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Wells Fargo Capital Finance, LLC |
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Equipment Financing Obligations | ||||||||||
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Kennet Equipment Leasing Limited |
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Regents Capital Corporation |
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Lloyds Bank Commercial Finance Limited (1) |
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PNC Business Credit (1) |
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Total |
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| ||||||||
|
Less: Current portion |
( |
) |
( |
) | ||||||
|
Long-term Portion |
$ |
|
$ |
| ||||||
|
| |
|
(1) |
|
|
| |
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(2) |
|
Paycheck Protection Program Loans
In March 2021 and in April 2020, the Company’s U.S. operations received $2,000,000 and $2,217,500, respectively, in funds from One Community Bank through the Paycheck Protection Program (“PPP”) administered by the U.S. Small Business Administration (“SBA”) under the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”). The $
All or a portion of the loans may be forgiven by the SBA for costs the Company incurred for payroll, rent, utilities and all other allowable expenses during the 24-week period that began March 1, 2021 for the Second Draw PPP Loan and April 13, 2020 for the First Draw PPP Loan. The Company used all proceeds from the loans to maintain payroll and make payments for lease, utility and other allowable expenses. In accordance with International Accounting Standards (“IAS”) 20, “Accounting for Government Grants and Disclosure of Government Assistance,” the Company recognized the funding from the PPP as grant income of $
In June 2021 and August 2021, the Company was notified that all of its First and Second Draw PPP Loans, respectively, were forgiven.
10.Related Party Obligations
Long-term debt to related parties consists of the following:
|
Interest Rate |
October 3, 2021 |
January 3, 2021 | ||||||||
|
| ||||||||||
|
Senior subordinated promissory note |
|
$ |
|
$ |
| |||||
|
Senior secured promissory note |
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|
Subordinated secured promissory note |
|
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|
Subordinated secured promissory note |
|
|
| |||||||
|
Long-term debt to related parties |
$ |
|
$ |
| ||||||
The above notes were issued to the Company’s majority shareholder. The first three notes above were amended on March 26, 2021 to change the maturity date to
For the nine months 2020, proceeds of $
The Company has finance leases under which it leases its main U.S. manufacturing facility and certain other property from a related party lessor entity that is owned by the Company’s majority shareholder. These related party finance leases expire at various dates from October 2023 through October 2033. The Company has security deposits aggregating $
The components of lease expense for the related party finance leases for the three and nine months ended October 3, 2021 and October 4, 2020 are as follows:
|
Three Months Ended |
Nine Months Ended | ||||||||||||||
|
October 3, 2021 |
October 4, 2020 |
October 3, 2021 |
October 4, 2020 | ||||||||||||
|
Finance lease expense: | |||||||||||||||
|
Amortization of right-of-use assets |
$ |
|
$ |
|
$ |
|
$ |
| |||||||
|
Interest on lease liabilities |
|
|
|
| |||||||||||
|
Total finance lease expense |
$ |
|
$ |
|
$ |
|
$ |
| |||||||
Cash paid for amounts included in the measurement of related party finance lease liabilities for the three and nine months ended October 3, 2021 and October 4, 2020 are as follows:
|
Three Months Ended |
Nine Months Ended | |||||||||||||||
|
October 3, 2021 |
October 4, 2020 |
October 3, 2021 |
October 4, 2020 | |||||||||||||
|
Operating cash flows from finance leases |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Financing cash flows from finance leases |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
Supplemental balance sheet and other information regarding related party finance leases are as follows:
|
October 3, 2021 |
January 3, 2021 | |||||||
|
Finance leases: | ||||||||
|
Property and equipment, net |
$ |
|
$ |
| ||||
|
Current maturities of finance lease liabilities |
$ |
|
$ |
| ||||
|
Finance lease liabilities, less current portion |
|
| ||||||
|
Total finance lease liabilities |
$ |
|
$ |
| ||||
|
Weighted average remaining lease term |
|
| ||||||
|
Weighted average discount rate |
|
| ||||||
Maturities of related party finance lease liabilities as of October 3, 2021 are as follows:
|
Totals | ||||
|
Due in one year or less |
$ |
| ||
|
Due after one year through two years |
| |||
|
Due after two years through three years |
| |||
|
Due after three years through four years |
| |||
|
Due after four years through five years |
| |||
|
Thereafter |
| |||
|
Total lease payments |
| |||
|
Less: Interest |
( |
) | ||
|
Total related party finance lease liabilities |
$ |
| ||
Quarterly preferred dividend payments on preferred units and preferred stock (collectively “preferred shares”) were deferred beginning with the three months ended December 29, 2019 through the three months ended October 3, 2021. During the third quarter of 2021, the owners of the preferred shares (“preferred shareholders”) agreed to an amendment to the documents that govern the dividends (“amended documents”) whereby the accrued dividends were forgiven. As a result, the total balance of accrued dividends of approximately $
11.Leases
The Company has operating leases for equipment and office facilities and finance leases for equipment. These leases expire at various dates from October 2021 through March 2039. Operating leases are included in operating lease right-of-use assets, accrued expenses and other liabilities, and operating lease liabilities in the accompanying consolidated balance sheets. Finance leases are included in property and equipment, current maturities of finance lease liabilities, and finance lease liabilities, less current portion in the accompanying consolidated balance sheets. For the three and nine months ended October 3, 2021, there were $
The components of lease expense for the three and nine months ended October 3, 2021 and October 4, 2020 are as follows:
|
Three Months Ended |
Nine Months Ended | |||||||||||||||
|
October 3, 2021 |
October 4, 2020 |
October 3, 2021 |
October 4, 2020 | |||||||||||||
|
| ||||||||||||||||
|
Operating lease expense |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
| ||||||||||||||||
|
Finance lease expense: | ||||||||||||||||
|
Amortization of right-of-use assets |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Interest on lease liabilities |
|
|
|
| ||||||||||||
|
Total finance lease expense |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
Cash paid for amounts included in the measurement of lease liabilities for the three and nine months ended October 3, 2021 and October 4, 2020 are as follows:
|
Three Months Ended |
Nine Months Ended | |||||||||||||||
|
October 3, 2021 |
October 4, 2020 |
October 3, 2021 |
October 4, 2020 | |||||||||||||
|
| ||||||||||||||||
|
Operating cash flows from operating leases |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Operating cash flows from finance leases |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
|
Financing cash flows from finance leases |
$ |
|
$ |
|
$ |
|
$ |
| ||||||||
Supplemental balance sheet and other information related to operating leases are as follows:
|
October 3, 2021 |
January 3, 2021 | |||||||
|
Operating leases: | ||||||||
|
Operating lease right-of-use assets, net |
$ |
|
$ |
| ||||
|
Accrued expenses and other liabilities |
$ |
|
$ |
| ||||
|
Operating lease liabilities, less current portion |
|
| ||||||
|
Total operating lease liabilities |
$ |
|
$ |
| ||||
|
Weighted average remaining lease term |
|
| ||||||
|
Weighted average discount rate |
|
| ||||||
Supplemental balance sheet and other information related to finance leases are as follows:
|
October 3, 2021 |
January 3, 2021 | |||||||
|
Finance leases: | ||||||||
|
Property and equipment, net |
$ |
|
$ |
| ||||
|
Current maturities of finance lease liabilities |
$ |
|
$ |
| ||||
|
Finance lease liabilities, less current portion |
|
| ||||||
|
Total finance lease liabilities |
$ |
|
$ |
| ||||
|
Weighted average remaining lease term |
|
| ||||||
|
Weighted average discount rate |
|
% |
|
% | ||||
Maturities of operating and finance lease liabilities as of October 3, 2021 are as follows:
|
Operating Leases |
Finance Leases | |||||||
|
Due in one year or less |
$ |
|
$ |
| ||||
|
Due after one year through two years |
|
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|
Due after two years through three years |
|
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Due after three years through four years |
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Due after four years through five years |
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Thereafter |
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Total lease payments |
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| ||||||
|
Less: Interest |
( |
) |
( |
) | ||||
|
Total |
$ |
|
$ |
| ||||
12.Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss for the three months ended October 3, 2021 and October 4, 2020 were as follows:
|
Minimum Benefit Liability Adjustments |
Foreign Currency Translation Adjustment |
Total | ||||||||||
|
| ||||||||||||
|
Balance at July 5, 2020 |
$ |
|
$ |
( |
) |
$ |
( |
) | ||||
|
| ||||||||||||
|
Other comprehensive income |
|
|
| |||||||||
|
| ||||||||||||
|
Balance at October 4, 2020 |
$ |
|
$ |
( |
) |
$ |
( |
) | ||||
|
| ||||||||||||
|
Balance at July 4, 2021 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
|
| ||||||||||||
|
Other comprehensive loss |
|
( |
) |
( |
) | |||||||
|
| ||||||||||||
|
Balance at October 3, 2021 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
The changes in accumulated other comprehensive loss for the nine months ended October 3, 2021 and October 4, 2020 were as follows:
|
Minimum Benefit Liability Adjustments |
Foreign Currency Translation Adjustment |
Total | ||||||||||
|
| ||||||||||||
|
Balance at December 29, 2019 |
$ |
|
$ |
( |
) |
$ |
( |
) | ||||
|
| ||||||||||||
|
Other comprehensive loss |
|
( |
) |
( |
) | |||||||
|
| ||||||||||||
|
Balance at October 4, 2020 |
$ |
|
$ |
( |
) |
$ |
( |
) | ||||
|
| ||||||||||||
|
Balance at January 3, 2021 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
|
| ||||||||||||
|
Other comprehensive loss |
|
( |
) |
( |
) | |||||||
|
| ||||||||||||
|
Balance at October 3, 2021 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) | |||
13.Income (Loss) per Common Share
The calculations of diluted earnings per share for the three and nine months ended October 3, 2021 excluded options (as provided under the Company’s 2015 Stock Option Plan) to purchase
14.Revenue
The Company recognizes revenue and related accounts receivable when obligations under the terms of a contract with a customer are satisfied, which includes the control of products transferring to the customer. For Uniroyal, this generally occurs when products are shipped and, for UGL, this generally occurs when the customer accepts delivery either at the Company’s U.K. facility or at a mutually agreed upon location. Revenue is measured as the amount of consideration the Company expects to receive in exchange for products transferred to the customer.
The following table sets forth revenue disaggregated by the Company’s automotive and industrial sectors for the three and nine months ended October 3, 2021 and October 4, 2020:
|
Three Months Ended |
Nine Months Ended |
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|
October 3, 2021 |
October 4, 2020 |
October 3, 2021 |
October 4, 2020 |
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|
Revenue by sector: |
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|
Automotive |
$ |
|
$ |
|
$ |
|
$ |
|
| |||||||
|
Industrial |
|
|
|
|
| |||||||||||
|
Total Revenue |
$ |
|
$ |
|
$ |
|
$ |
|
| |||||||
The following table sets forth revenue disaggregated by the geographic locations of the Company’s customers for the three and nine months ended October 3, 2021 and October 4, 2020:
|
Three Months Ended |
Nine Months Ended |
| ||||||||||||||
|
October 3, 2021 |
October 4, 2020 |
October 3, 2021 |
October 4, 2020 |
| ||||||||||||
|
Revenue by customer location: |
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|
North America |
$ |
|
$ |
|
$ |
|
$ |
|
| |||||||
|
Europe |
|
|
|
|
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|
Asia |
|
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|
|
| |||||||||||
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Other |
|
|
|
|
| |||||||||||
|
Total Revenue |
$ |
|
$ |
|
$ |
|
$ |
|
| |||||||
15.Subsequent Events
The Company has evaluated subsequent events occurring through November 16, 2021 for events requiring recording or disclosure in the October 3, 2021 consolidated financial statements. As previously stated, in October 2021 the Company received approximately $
| 20 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Business Description
We are a leading provider of manufactured vinyl coated fabrics. Our best-known brand, Naugahyde, is the product of many improvements on a rubber-coated fabric developed a century ago in Naugatuck, Connecticut. We design, manufacture and market a wide selection of vinyl coated fabric products under a portfolio of recognized brand names. We believe that our business has continued to be a leading supplier in its marketplace because of our ability to provide specialized materials with performance characteristics customized to the end-user specifications, complemented by technical and customer support for the use of our products in manufacturing.
Our vinyl coated fabric products have undergone considerable evolution and today are distinguished by superior performance in a wide variety of applications as alternatives to leather, cloth and other synthetic fabric coverings. Our standard product lines consist of more than 525 SKUs with combinations of colors, textures, patterns and other properties. Our products are differentiated by unique protective top finishes and transfer print capabilities. Additional process capabilities include embossing grains and patterns, and rotogravure printing, which imparts five color character prints and non-registered prints, lamination and panel cutting.
Our vinyl coated fabric products have various high-performance characteristics and capabilities. They are durable, stain resistant, easily processed, more cost-effective and better performing than traditional leather or fabric coverings. Our products are frequently used in applications that require rigorous performance characteristics such as automotive and non-automotive transportation, certain indoor/outdoor furniture, commercial and hospitality seating, health care facilities and athletic equipment. We manufacture materials in a wide range of colors and textures. They can be hand or machine sewn, laminated to an underlying structure, thermoformed to cover various substrates or made into a variety of shapes for diverse end-uses. We are a long-established supplier to the global automotive industry and manufacture products for interior soft trim components from floor to headliner, which are produced to meet specific component production requirements such as cut and sew, vacuum forming/covering, compression molding, and high frequency welding. Some products are supplied with micro perforations, which are necessary on most compression molding processes. Materials can also be combined with polyurethane or polypropylene foam laminated by either flame or hot melt adhesive for seating, fascia and door applications.
Products are developed and marketed based upon the performance characteristics required by end-users. For example, for recreational products used outdoors, such as boats, personal watercraft, golf carts and snowmobiles, a product designed primarily for water-based durability and weatherability is used. We also manufacture a line of products called BeautyGard®, with water-based topcoats that contain agents to protect against bacterial and fungal micro-organisms and can withstand repeated cleaning, a necessity in the restaurant and health care industries. These topcoats are environmentally friendlier than solvent-based topcoats. The line is widely used in hospitals and other health care facilities. Flame and smoke retardant vinyl coated fabrics are used for a variety of commercial and institutional furniture applications, including hospitals, restaurants and residential care centers and seats for school buses, trains and aircraft.
We currently conduct our operations in manufacturing facilities that are located in Stoughton, Wisconsin and Earby, England.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. For further discussion of our significant accounting policies, refer to Note 1 – “Basis of Presentation and Summary of Significant Accounting Policies” to the consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies, Judgments and Estimates” in our Annual Report on Form 10-K for the fiscal year ended January 3, 2021.
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Overview:
We and our subsidiaries use a 52/53-week fiscal year ending on the Sunday nearest to December 31. The current year ending January 2, 2022 is a 52-week year whereas the prior year ended January 3, 2021 was a 53-week year. Our U.K. subsidiaries use the calendar year end of December 31. The activity of the U.K. subsidiaries that occurs on the days that do not coincide with our year-end is not material. Both the three months ended October 3, 2021 and October 4, 2020 were 13-week periods while the nine months ended October 3, 2021 was a 26-week period and the nine months ended October 4, 2020 was a 27-week period.
Our Earby, England operation’s functional currency is the British Pound Sterling (“Pound Sterling”) and has sales and purchases transactions that are denominated in currencies other than the Pound Sterling, principally the Euro. Approximately 30% of our global revenues and 33% of our global raw material purchases are derived from these Euro transactions.
The average year-to-date exchange rate for the Pound Sterling to the U.S. Dollar was approximately 8.8% higher and the average exchange rate for the Euro to the Pound Sterling was approximately 2.4% lower in 2021 compared to 2020. These exchange rate changes had the effect of increasing net sales by approximately $1,841,000 for the nine months ended October 3, 2021. The overall currency effect on our net income was a negative amount of approximately $148,000 for the nine months ended October 3, 2021.
The current coronavirus pandemic (“COVID-19”) has had an impact on markets we serve and our operations. Since COVID-19 is a continually evolving situation, we cannot predict the long-term impact it will have on the economy or our business. The impact could have a material adverse effect on our financial position, results of operations and cash flows, which may require us to obtain additional financing. As discussed below, we continue to pursue supplementary cash flow opportunities.
Through the Paycheck Protection Program (“PPP”) administered by the U.S. Small Business Administration (“SBA”) under the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”), our U.S. operations received $2,000,000 (“Second Draw PPP Loan”) and $2,217,500 (“First Draw PPP Loan”) in March 2021 and in April 2020, respectively, in funds from One Community Bank. We used all proceeds from these PPP loans for allowable expenses (as defined in the PPP loans) and applied for forgiveness of the PPP loans in accordance with the terms of the CARES Act. In June 2021 and August 2021, we were notified that all of our First and Second Draw PPP Loans, respectively, were forgiven. See Note 9 to the consolidated financial statements for further discussion.
For the U.K. operations, during the third quarter of 2021 and 2020, we recorded reimbursed costs of approximately $49,000 and $474,000, respectively, and during the first nine months of 2021 and 2020 we recorded reimbursed costs of approximately $150,000 and $1,560,000, respectively, under the Coronavirus Job Retention Scheme (“CJRS”) set up by the U.K. government to help employers pay the salaries of those employees who would otherwise have been laid off during the coronavirus outbreak but under the CJRS were furloughed instead. The much lower reimbursed costs for the third quarter and first nine months of 2021 reflected that employees were furloughed significantly less than in the same periods of 2020. This program reimbursed us for up to 80% of the compensation expense plus national insurance and certain benefits paid to the furloughed employees, resulting in lower salary expense for us. While the employees were on furlough, the compensation paid to them was limited to the amount reimbursed by the CJRS. We recorded the reimbursed amounts as reductions to the associated expenses.
Also for the U.K. operations, in June 2021 its bank lending facilities with Lloyds Bank Commercial Finance Limited (“Lloyds”) were refinanced with PNC Business Credit (“PNC”). PNC provided us additional availability by expanding its borrowing base to include eligible equipment. This transaction was accounted for as a debt extinguishment per Accounting Standards Codification (“ASC”) 470, “Debt”, under which the existing Lloyds debt was derecognized and the new PNC debt was recorded at fair value. A loss of £46,813 ($64,768) was recognized on this transaction and is recorded in general and administrative expenses in the consolidated statement of operations for the nine months ended October 3, 2021. Debt issuance costs of £247,114 ($341,895) related to this transaction were capitalized. These capitalized costs are being amortized over 36 months. The Company has classified these debt issuance costs within other long-term assets in the accompanying consolidated balance sheet. See Notes 8 and 9 to the consolidated financial statements for further discussion.
Additionally for the U.K. operations, in September 2021 we received $137,815 related to the second installment of loans from the automotive lenders per the original loan agreement. The remainder of the second installment of loans of approximately $260,000 was received in October 2021. These amounts are due to be repaid in the first quarter of 2023. In addition, the amounts due to be repaid at the end of the third and fourth quarters of 2021 (each approximately $162,500) from the first installment of loans from the automotive lenders were deferred until the third and fourth quarters of 2022, respectively.
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Three Months Ended October 3, 2021 Compared to the Three Months Ended October 4, 2020
The following table sets forth, for the three months ended October 3, 2021 (“three months 2021”) and October 4, 2020 (“three months 2020”), certain operational data including their respective percentage of net sales:
| Three Months Ended | ||||||||||||||||||
| October 3, 2021 | October 4, 2020 | Change | % Change | |||||||||||||||
| Net Sales | $ | 16,385,914 | 100.0% | $ | 15,171,898 | 100.0% | $ | 1,214,016 | 8.0% | |||||||||
| Cost of Goods Sold | 14,430,915 | 88.1% | 13,114,967 | 86.4% | 1,315,948 | 10.0% | ||||||||||||
| Gross Profit | 1,954,999 | 11.9% | 2,056,931 | 13.6% | (101,932 | ) | -5.0% | |||||||||||
| Operating Expenses: | ||||||||||||||||||
| Selling | 681,397 | 4.2% | 778,699 | 5.1% | (97,302 | ) | -12.5% | |||||||||||
| General and administrative | 1,555,660 | 9.5% | 1,957,486 | 12.9% | (401,826 | ) | -20.5% | |||||||||||
| Research and development | 307,283 | 1.9% | 198,182 | 1.3% | 109,101 | 55.1% | ||||||||||||
| Total Operating Expenses | 2,544,340 | 15.5% | 2,934,367 | 19.3% | (390,027 | ) | -13.3% | |||||||||||
| Operating Loss | (589,341 | ) | -3.6% | (877,436 | ) | -5.8% | 288,095 | -32.8% | ||||||||||
| Interest expense | (430,177 | ) | -2.6% | (367,454 | ) | -2.4% | (62,723 | ) | 17.1% | |||||||||
| Funding from Paycheck Protection Program |
- | 0.0% | 33,824 | 0.2% | (33,824 | ) | -100% | |||||||||||
| Other (expense) income | (7,381 | ) | 0.0% | 85,753 | 0.6% | (93,134 | ) | <-100% | ||||||||||
| Loss before Tax Benefit | (1,026,899 | ) | -6.3% | (1,125,313 | ) | -7.4% | 98,414 | -8.7% | ||||||||||
| Tax benefit | (202,925 | ) | -1.2% | (111,318 | ) | -0.7% | (91,607 | ) | 82.3% | |||||||||
| Net Loss | (823,974 | ) | -5.0% | (1,013,995 | ) | -6.7% | 190,021 | -18.7% | ||||||||||
| Extinguishment of preferred stock dividend payable |
6,158,311 | 37.6% | - | 0.0% | 6,158,311 | - | ||||||||||||
| Preferred stock dividend | (539,866 | ) | -3.3% | (808,638 | ) | -5.3% | 268,772 | -33.2% | ||||||||||
| Net Income (Loss) Allocable to Common Shareholders |
$ | 4,794,471 | 29.3% | $ | (1,822,633 | ) | -12.0% | $ | 6,617,104 | <-100% | ||||||||
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Revenue:
Total revenue for the three months 2021 increased $1,214,016 or 8.0% to $16,385,914 compared to $15,171,898 for the three months 2020. The increase in revenue included a favorable currency effect of approximately $155,000. However, sales in the third quarter of 2021 declined $1,363,321 or 7.7% compared to the second quarter of 2021.
For the three months 2021 compared to the three months 2020, automotive sales declined 3.9% primarily due to a decline in sales of 14.4% (excluding the currency adjustment) for our U.K. operations, which was partially offset by a 10.2% increase in automotive sales for our U.S. operations. Supply chain issues experienced by the OEM’s that use our automotive products lead to temporary shutdowns of their production lines, which negatively impacted our sales, particularly at our U.K. operations since the majority of their business is in the automotive sector. These supply chain issues were also the primary reason for the 14.1% decline in automotive sales when comparing the third quarter of 2021 with the second quarter of 2021.
Additionally for the three months 2021 compared to the three months 2020, sales for the industrial sector increased 25.7% (25.3% before the currency effect) mostly due to an increase in our U.S. operations (primarily in the contract market) as well as in our U.K. operations. Sales for the industrial sector increased slightly when comparing the third quarter of 2021 with the second quarter of 2021.
Gross Profit:
Total gross profit for the three months 2021 decreased $101,932 or 5.0% to $1,954,999 compared to $2,056,931 for the three months 2020. Impacting the decrease was the CJRS reimbursement of $47,000 and $370,000 for the three months 2021 and 2020, respectively, for salaries of furloughed employees, which reduced manufacturing costs. Excluding the CJRS reimbursement, gross profit would have increased $221,068. In addition, the decrease in gross profit included an unfavorable currency effect of approximately $87,000. The gross profit percentage was 11.9% of sales for the three months 2021 compared to 13.6% for the three months 2020. The gross profit and percentage for the three months 2021 were negatively impacted by supply chain issues, as discussed above, as well as higher costs of raw materials and freight. To offset raw material price increases, we increased prices on most product categories during the first quarter of 2021 and at the beginning and end of the third quarter of 2021 in several of our markets. However, we have not realized the full impact of the increases yet. Both the gross profit amount and percentage for the third quarter of 2021 improved when compared to the second quarter of 2021 gross profit amount and percentage of $1,821,793 and 10.3%, respectively, as lower costs more than offset the reduction in sales.
Operating Expenses:
Selling expenses for the three months 2021 decreased $97,302 or 12.5% to $681,397 from $778,699 for the three months 2020. Selling expenses were not reduced for the three months 2021 but were reduced $43,000 for the three months 2020 due to the CJRS reimbursement. Excluding the CJRS reimbursement, selling expenses would have decreased $140,302.The decrease in selling expenses was partially offset by a $9,000 unfavorable currency effect. When comparing the third quarter of 2021 with the second quarter of 2021, selling expenses decreased $153,341 or 18.4%. The decrease from the three months 2020 was primarily due to a decline in employment costs for the U.S. operations partially offset by the increase in the U.K. operations (mainly due to the CJRS reimbursement) while the decrease from the second quarter of 2021 was primarily due to lower commissions from U.K. automotive programs.
General and administrative expenses for the three months 2021 decreased $401,826 or 20.5% to $1,555,660 from $1,957,486 for the three months 2020. General and administrative expenses were reduced $1,000 and $15,000 for the three months 2021 and 2020, respectively, due to the CJRS reimbursement. Excluding the CJRS reimbursement, general and administrative expenses would have decreased $415,826. The decrease in general and administrative expenses was partially offset by a $25,000 unfavorable currency effect. When comparing the third quarter of 2021 with the second quarter of 2021, general and administrative expenses increased $116,172 or 8.1%. The decrease from the three months 2020 was primarily due to lower costs related to cash management consulting services provided to us while the increase from the second quarter of 2021 was primarily due to higher costs related to these services. The decrease from the three months 2020 was also due to a charge relating to the legal proceeding in the U.K. that was expensed in 2020.
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Research and development expenses for the three months 2021 increased $109,101 or 55.1% to $307,283 from $198,182 for the three months 2020. Research and development expenses were reduced $1,000 and $46,000 for the three months 2021 and 2020, respectively, due to the CJRS reimbursement. Excluding the CJRS reimbursement, research and development expenses would have increased $64,101. The increase in research and development expenses included a $10,000 unfavorable currency effect. The increase from the three months 2020 was primarily due to more activity including qualifying raw material substitutions due to supply constraints. When comparing the third quarter of 2021 with the second quarter of 2021, research and development expenses decreased $24,682 or 7.4% as qualifying activity declined.
Operating Loss:
Operating loss for the three months 2021 was $589,341 compared to $877,436 for the three months 2020 and $784,398 for the second quarter of 2021. The smaller operating loss for the three months 2021 compared to the three months 2020 was due to lower operating expenses more than offsetting the decline in gross profit. The smaller operating loss for the three months 2021 compared to the second quarter of 2021 was due to the combination of higher gross profit and lower operating expenses. The operating loss percentage was -3.6% of sales for the three months 2021 compared to -5.8% for the three months 2020 and -4.4% for the second quarter of 2021.
Interest Expense:
Interest expense for the three months 2021 increased $62,723 or 17.1% to $430,177 from $367,454 for the three months 2020. The increase was primarily due to debt issuances and capitalized debt issuance costs, the amortization of which began in the third quarter of 2021, partially offset by debt repayments.
Funding from Paycheck Protection Program:
Funding from the PPP of $33,824 (from the First Draw PPP Loan) for the three months 2020 were the proceeds from the PPP loans that we used during the period for allowable expenses under the PPP. As previously discussed, all of the First and Second Draw PPP Loans were forgiven in June 2021 and August 2021, respectively.
Other (Expense) Income:
Other expense for the three months 2021 was $(7,381) compared to other income of $85,753 for the three months 2020. Included in other (expense) income are the currency gains and losses recognized on foreign currency transactions and the change in the fair value of financial assets and liabilities that are denominated in Euros as these currencies fluctuated during the period.
Income Taxes:
We file income tax returns in the United States as a C-Corporation, and in several state jurisdictions and in the United Kingdom. Our U.S. operating subsidiary, Uniroyal, is a limited liability company (LLC) for federal and state income tax purposes and as such, its income, losses, and credits pass through to its members. We made the acquisition of Uniroyal through UEPH, a limited liability company, which issued preferred ownership interests to the sellers that provide for quarterly dividends. Uniroyal’s taxable income is allocated entirely to UEPH as its sole member and since it is a pass-through entity, this income less the dividends paid to the sellers of Uniroyal is reported on our tax return. The taxable income applicable to the dividends for the preferred ownership interests is reported to the sellers who report it on their respective individual tax returns.
We do not have a history of repatriating a significant portion of our foreign cash. However, if we decided to repatriate these foreign amounts to fund U.S. operations, we would not be required to pay any additional U.S. tax related to these amounts since we previously recorded a one-time transition tax on deemed repatriation of deferred foreign income.
The tax benefit for the three months 2021 was $202,925 compared to $111,318 for the three months 2020. The tax benefit for the three months 2021 was attributable to the results of both the U.S. and U.K. operations while the tax benefit for the three months 2020 was principally attributable to the results of the U.K. operations.
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Preferred Stock Dividend:
Pursuant to the terms of their acquisitions, the issuance of preferred ownership units/stock of UEP Holdings, LLC and UGEL were issued to the sellers. These preferred units/stock (collectively “preferred shares”) have carried quarterly dividend requirements on a total value of $55,000,000 at rates ranging from 5.0% to 8.0%. The dividend rate on the Series B UEP Holdings preferred units which started at 5.5% increased by 0.5% on the anniversary of the issuance and is now at the maximum of 8.0%.
Quarterly preferred dividend payments were deferred beginning with the three months ended December 29, 2019 through the three months ended October 3, 2021. During the third quarter of 2021, the owners of the preferred shares (“preferred shareholders”) agreed to an amendment to the documents that govern the dividends (“amended documents”) whereby the accrued dividends were forgiven. In addition, under the amended documents the preferred shareholders are no longer entitled to a quarterly dividend until such time as the Company declares a dividend payable.
We accounted for the dividend forgiveness as an extinguishment of debt between related parties per ASC 470, “Debt”. As a result, the total balance of accrued dividends of approximately $6,100,000 was derecognized as of October 3, 2021. The amendments to remove the entitlement of the quarterly dividends (“entitlement amendments”) relating to the preferred shares were considered not significant and, therefore, were considered a modification rather than an extinguishment per ASC 470. The entitlement amendments were considered not significant since the change in the fair values of the preferred shares after the amendments compared to the fair values of the preferred shares immediately before the amendments was less than 10% as we determined that the entitlement amendments resulted in a reduction of fair value of the preferred shares. Per ASC 718, “Compensation – Stock Compensation”, the reduction of fair value of the preferred shares in this modification had no accounting impact (i.e., recognition of a gain).
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Nine Months Ended October 3, 2021 Compared to the Nine Months Ended October 4, 2020
The following table sets forth, for the nine months ended October 3, 2021 (“nine months 2021”) and October 4, 2020 (“nine months 2020”), certain operational data including their respective percentage of net sales:
| Nine Months Ended | ||||||||||||||||||
| October 3, 2021 | October 4, 2020 | Change | % Change | |||||||||||||||
| Net Sales | $ | 56,031,150 | 100.0% | $ | 43,528,393 | 100.0% | $ | 12,502,757 | 28.7% | |||||||||
| Cost of Goods Sold | 49,017,021 | 87.5% | 37,931,227 | 87.1% | 11,085,794 | 29.2% | ||||||||||||
| Gross Profit | 7,014,129 | 12.5% | 5,597,166 | 12.9% | 1,416,963 | 25.3% | ||||||||||||
| Operating Expenses: | ||||||||||||||||||
| Selling | 2,414,847 | 4.3% | 2,278,279 | 5.2% | 136,568 | 6.0% | ||||||||||||
| General and administrative | 4,574,175 | 8.2% | 4,834,011 | 11.1% | (259,836 | ) | -5.4% | |||||||||||
| Research and development | 966,706 | 1.7% | 704,239 | 1.6% | 262,467 | 37.3% | ||||||||||||
| Total Operating Expenses | 7,955,728 | 14.2% | 7,816,529 | 18.0% | 139,199 | 1.8% | ||||||||||||
| Operating Loss | (941,599 | ) | -1.7% | (2,219,363 | ) | -5.1% | 1,277,764 | -57.6% | ||||||||||
| Interest expense | (1,217,861 | ) | -2.2% | (1,215,771 | ) | -2.8% | (2,090 | ) | 0.2% | |||||||||
| Funding from Paycheck Protection Program |
2,000,000 | 3.6% | 2,217,500 | 5.1% | (217,500 | ) | -9.8% | |||||||||||
| Other income (expense) | 157,978 | 0.3% | (185,417 | ) | -0.4% | 343,395 | <-100% | |||||||||||
| Loss before Tax Benefit | (1,482 | ) | 0.0% | (1,403,051 | ) | -3.2% | 1,401,569 | -99.9% | ||||||||||
| Tax benefit | (409,548 | ) | -0.7% | (404,141 | ) | -0.9% | (5,407 | ) | 1.3% | |||||||||
| Net Income (Loss) | 408,066 | 0.7% | (998,910 | ) | -2.3% | 1,406,976 | <-100% | |||||||||||
| Extinguishment of preferred stock dividend payable |
6,158,311 | 11.0% | - | 0.0% | 6,158,311 | - | ||||||||||||
| Preferred stock dividend | (2,172,253 | ) | -3.9% | (2,396,479 | ) | -5.5% | 224,226 | -9.4% | ||||||||||
| Net Income (Loss) Allocable to Common Shareholders |
$ | 4,394,124 | 7.8% | $ | (3,395,389 | ) | -7.8% | $ | 7,789,513 | <-100% | ||||||||
Revenue:
Total revenue for the nine months 2021 increased $12,502,757 or 28.7% to $56,031,150 from $43,528,393 for the nine months 2020. The lower amount for the nine months 2020 reflected the negative effect of COVID-19, which primarily occurred during the second quarter of 2020. The increase in revenue included a favorable currency effect of approximately $1,841,000.
For the nine months 2021 compared to the nine months 2020, automotive sales for our U.K. operations increased 23.7% (excluding the currency adjustment) and automotive sales for our U.S. operations increased 26.5% due to the negative effect that COVID-19 had primarily on the second quarter of 2020. However, the year-to-date growth was negatively impacted by supply chain issues experienced by the OEM’s that use our automotive products, which lead to temporary shutdowns of their production lines during the second and third quarters of 2021.
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Additionally, sales for the industrial sector increased 24.1% (22.8% before the currency effect) mostly due to an increase in our U.S. operations (primarily in the contract market) as well as in our U.K. operations. As discussed above, COVID-19 had a negative effect on our operations primarily during the second quarter of 2020.
Gross Profit:
Total gross profit for the nine months 2021 increased $1,416,963 or 25.3% to $7,014,129 from $5,597,166 for the nine months 2020. The gross profit amount for the nine months 2020 reflected the negative impact of COVID-19. Impacting the increase was the CJRS reimbursement of $130,000 and $1,304,000 for the nine months 2021 and 2020, respectively, for salaries of furloughed employees, which reduced manufacturing costs. Excluding the CJRS reimbursement, gross profit would have increased $2,590,963. In addition, the increase in gross profit was partially offset by an unfavorable currency effect of approximately $67,000. The gross profit percentage was 12.5% of sales for the nine months 2021 compared to 12.9% for the nine months 2020. The gross profit and percentage for the nine months 2021 were negatively impacted by supply chain issues, as discussed above, as well as higher costs of raw materials and freight. To offset raw material price increases, we increased prices on most product categories during the first quarter of 2021 and at the beginning and end of the third quarter of 2021 in several of our markets. However, we have not realized the full impact of the increases yet.
Operating Expenses:
Selling expenses for the nine months 2021 increased $136,568 or 6.0% to $2,414,847 from $2,278,279 for the nine months 2020. Selling expenses were reduced $7,000 and $99,000 for the nine months 2021 and 2020, respectively, due to the CJRS reimbursement. Excluding the CJRS reimbursement, selling expenses would have increased $44,568. The increase in selling expenses included a $100,000 unfavorable currency effect. The higher amount for the nine months 2021 reflected increased selling-related expenses due to greater sales activity as the negative effect of COVID-19 decreased this activity during 2020, but was partially offset by the slowing of sales activity beginning in the second quarter of 2021.
General and administrative expenses for the nine months 2021 decreased $259,836 or 5.4% to $4,574,175 from $4,834,011 for the nine months 2020. General and administrative expenses were reduced $5,000 and $35,000 for the nine months 2021 and 2020, respectively, due to the CJRS reimbursement. Excluding the CJRS reimbursement, general and administrative expenses would have decreased $289,836. The decrease in general and administrative expenses was partially offset by an unfavorable currency effect of $94,000. The decrease from the nine months 2020 was primarily due to lower costs for cash management consulting services provided to us and a charge relating to the legal proceeding in the U.K. that was expensed in 2020.
Research and development expenses for the nine months 2021 increased $262,467 or 37.3% to $966,706 from $704,239 for the nine months 2020. Research and development expenses were reduced $8,000 and $122,000 for the nine months 2021 and 2020, respectively, due to the CJRS reimbursement. Excluding the CJRS reimbursement, research and development expenses would have increased $148,467. The increase in research and development expenses included a $40,000 unfavorable currency effect. The increase from the nine months 2020 was primarily due to more activity including qualifying raw material substitutions due to supply constraints.
Operating Loss:
Operating loss for the nine months 2021 was $941,599 compared to $2,219,363 for the nine months 2020. The smaller operating loss for the nine months 2021 compared to the nine months 2020 was due to higher gross profit partially offset by higher operating expenses. The operating loss percentage was -1.7% of sales for the nine months 2021 compared to -5.1% for the nine months 2020.
Interest Expense:
Interest expense for the nine months 2021 decreased $2,090 or 0.2% to $1,217,861 from $1,215,771 for the nine months 2020. The decline in interest expense for the U.S. operations offset the increase in interest expense for the U.K. operations, which included amortization of debt issuance costs related to the PNC debt.
Funding from Paycheck Protection Program:
Funding from the PPP of $2,000,000 (from the Second Draw PPP Loan) for the nine months 2021 and $2,217,500 (from the First Draw PPP Loan) for the nine months 2020, were the proceeds from the PPP loans that we used during those periods for allowable expenses under the PPP. As previously discussed, all of the First and Second Draw PPP Loans were forgiven in June 2021 and August 2021, respectively.
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Other Income (Expense):
Other income for the nine months 2021 was $157,978 compared to other expense of $(185,417) for the nine months 2020. Included in other income (expense) are the currency gains and losses recognized on foreign currency transactions and the change in the fair value of financial assets and liabilities that are denominated in Euros as these currencies fluctuated during the period.
Income Taxes:
We file income tax returns in the United States as a C-Corporation, and in several state jurisdictions and in the United Kingdom. Our U.S. operating subsidiary, Uniroyal, is a limited liability company (LLC) for federal and state income tax purposes and as such, its income, losses, and credits pass through to its members. We made the acquisition of Uniroyal through UEPH, a limited liability company, which issued preferred ownership interests to the sellers that provide for quarterly dividends. Uniroyal’s taxable income is allocated entirely to UEPH as its sole member and since it is a pass-through entity, this income less the dividends paid to the sellers of Uniroyal is reported on our tax return. The taxable income applicable to the dividends for the preferred ownership interests is reported to the sellers who report it on their respective individual tax returns.
We do not have a history of repatriating a significant portion of our foreign cash. However, if we decided to repatriate these foreign amounts to fund U.S. operations, we would not be required to pay any additional U.S. tax related to these amounts since we previously recorded a one-time transition tax on deemed repatriation of deferred foreign income.
The tax benefit for the nine months 2021 was $409,548 compared to $404,141 for the nine months 2020. The tax benefits for the nine months 2021 and 2020 were principally attributable to the results of the U.S. operations.
Preferred Stock Dividend:
Pursuant to the terms of their acquisitions, the issuance of preferred ownership units/stock of UEP Holdings, LLC and UGEL were issued to the sellers. These preferred units/stock (collectively “preferred shares”) have carried quarterly dividend requirements on a total value of $55,000,000 at rates ranging from 5.0% to 8.0%. The dividend rate on the Series B UEP Holdings preferred units which started at 5.5% increased by 0.5% on the anniversary of the issuance and is now at the maximum of 8.0%.
Quarterly preferred dividend payments were deferred beginning with the three months ended December 29, 2019 through the three months ended October 3, 2021. During the third quarter of 2021, the owners of the preferred shares (“preferred shareholders”) agreed to an amendment to the documents that govern the dividends (“amended documents”) whereby the accrued dividends were forgiven. In addition, under the amended documents the preferred shareholders are no longer entitled to a quarterly dividend until such time as the Company declares a dividend payable.
We accounted for the dividend forgiveness as an extinguishment of debt between related parties per ASC 470, “Debt”. As a result, the total balance of accrued dividends of approximately $6,100,000 was derecognized as of October 3, 2021. The amendments to remove the entitlement of the quarterly dividends (“entitlement amendments”) relating to the preferred shares were considered not significant and, therefore, were considered a modification rather than an extinguishment per ASC 470. The entitlement amendments were considered not significant since the change in the fair values of the preferred shares after the amendments compared to the fair values of the preferred shares immediately before the amendments was less than 10% as we determined that the entitlement amendments resulted in a reduction of fair value of the preferred shares. Per ASC 718, “Compensation – Stock Compensation”, the reduction of fair value of the preferred shares in this modification had no accounting impact (i.e., recognition of a gain).
Liquidity and Sources of Capital
Cash, as it is needed, is provided by using our lines of credit. These lines provide for a total borrowing commitment of approximately $30,000,000 subject to the underlying borrowing base specified in the agreements. Of the total outstanding borrowings of $17,807,174 at October 3, 2021, for the U.S. operations, $6.0 million of the lines bears interest at the Eurodollar rate plus 2.25% and $4.9 million bears interest at the Wells Fargo Capital Finance, LLC’s prime rate (3.25% at October 3, 2021) and, for the U.K. operations, $6.9 million bears interest at the Bank of England Base Rate plus 2.25%-3.00%. The lines provided additional availability of approximately $764,000 and, combined with UEP’s and UGL’s total cash balances, liquidity was approximately $1.4 million at October 3, 2021. We plan to use this availability and cash provided by operating activities to finance our cash needs for the remaining months of fiscal 2021 and future periods. The balances due under the lines of credit are recorded as current liabilities on the consolidated balance sheets.
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The ratio of current assets to current liabilities, including the amount due under our lines of credit, was 0.99 at October 3, 2021 and 0.89 at January 3, 2021.
Cash balances decreased $1,040,515 before the effects of currency translation of $17,466 to $633,833 at October 3, 2021 from $1,656,882 at January 3, 2021. Of the above noted amounts, $216,524 and $1,621,692 were held outside the U.S. by our foreign subsidiaries as of October 3, 2021 and January 3, 2021, respectively.
Cash used in operations was $1,823,827 for the nine months 2021 compared to cash provided by operations of $966,649 for the nine months 2020. For the nine months 2021, cash used in operations was primarily due to changes in working capital of $(1,892,152), adjustments for non-cash items of $(312,209) and changes in other assets and liabilities of $(27,532) offset by net income of $408,066. For the nine months 2020, cash provided by operations was primarily due to changes in working capital of $2,772,839 offset by the net loss of $998,910, adjustments for non-cash items of $(784,889) and changes in other assets and liabilities of $(22,391).
Cash used in investing activities was $743,725 for the nine months 2021 compared to $1,171,258 for the nine months 2020. During 2021 and 2020, cash used in investing activities was principally for purchases of machinery and equipment at our manufacturing locations and payments made for company-owned key man life insurance premiums. For the nine months 2020, the payments made for the life insurance premiums were offset by proceeds from policy loans of $130,000.
For the nine months 2021, cash provided by financing activities was $1,527,037 compared to cash provided by financing activities of $464,890 for the nine months 2020. Impacting cash flows from financing activities for the nine months 2021 and 2020 were proceeds from issuance of long-term debt of $2,000,000 and $2,217,500, respectively, through the Paycheck Protection Program. Also impacting cash flows from financing activities for the nine months 2021 and 2020 were net advances on lines of credit of $892,278 and net payments of $1,913,809, respectively. The changes in the lines of credit reflect the funding of working capital. Payments of $917,536 and $1,189,638 were also made during the nine months 2021 and 2020, respectively, on long-term debt (excluding debt extinguishment) and finance lease liabilities. For the nine months 2021, payments were $1,486,504 and proceeds were $2,328,520 relating to the extinguishment of existing long-term debt and recognition of new long-term debt, respectively, while payments were $7,379,356 and proceeds were $6,565,288 relating to the extinguishment of an existing line of credit and recognition of a new line of credit, respectively. Also included for the nine months 2021 were payments for capitalized debt issuance costs of $341,895. For the nine months 2021 and 2020, proceeds from issuance of long-term debt from automotive lenders were $137,815 and $1,545,538 (net of translation adjustment of $(25,677)). Also for the nine months 2020, proceeds of $783,958 were received from and payments of $675,000 were made on subordinated secured promissory notes to our majority shareholder. Proceeds of $200,000 were received from a short-term advance from our majority shareholder during the first nine months of 2020 which was repaid in the same period.
Our credit agreements contain customary affirmative and negative covenants. We were in compliance with our debt covenants as of October 3, 2021 and through the date of filing of this report.
We currently have several on-going capital projects that are important to our long-term strategic goals. Machinery and equipment will also be added as needed to increase capacity or enhance operating efficiencies in our manufacturing plants. We will use a combination of financing arrangements to provide the necessary capital. We believe that our existing resources, including cash on hand and our credit facilities, together with cash generated from operations and additional bank borrowings, will be sufficient to fund our cash flow requirements through at least the next twelve months. However, there can be no assurance that additional financing will be available on favorable terms, if at all.
We have no off balance sheet arrangements.
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| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
| Item 4. | Controls and Procedures |
The Company maintains “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”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, Chief Financial Officer, and Board of Directors, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of October 3, 2021 and concluded that our disclosure controls and procedures were effective as of October 3, 2021.
Changes in Internal Controls over Financial Reporting
During the nine months ended October 3, 2021, there were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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| PART II. | OTHER INFORMATION |
| Item 1. | Legal Proceedings |
None.
| Item 1A. | Risk Factors |
Not applicable.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
None.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None.
| Item 6. | Exhibits |
| (a) | Exhibits. |
| Exhibit No. | Description | |
| 31.1 * | Chief Executive Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a) | |
| 31.2 * | Chief Financial Officer Certification Pursuant to Securities Exchange Act Rules 13a-14(a) | |
| 32.1 * | Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 | |
| 32.2 * | Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 | |
| 101 | Inline Interactive Data File | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.CAL * + | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF * + | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB * + | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE * + | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.SCH * + | Inline XBRL Taxonomy Extension Schema Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
_______________
| * | Filed herewith. |
| + | In accordance with Rule 406T of Regulation S-T, this information is deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| UNIROYAL GLOBAL ENGINEERED PRODUCTS, INC. | |||
| Dated: November 16, 2021 | By: | /s/ Howard R. Curd | |
|
Howard R. Curd Chief Executive Officer |
|||
| Dated: November 16, 2021 | By: | /s/ Edmund C. King | |
|
Edmund C. King Chief Financial Officer |
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