FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
of the Securities Exchange Act of 1934
For Quarter ended October 31, 1997
Commission file number 0-8006
ENERGY RESERVE, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0220617
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 West Clarendon, Suite 450, Phoenix, Arizona 85013
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code (602) 264-1897
Former name, former address and former fiscal year,
if changed since last report
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicated by check mark whether the registrant has filed all documents and
reports required to by filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class - Common Stock, without Par Value
19,905,188 Shares Outstanding at November 19, 1997
<PAGE>
ENERGY RESERVE, INC. AND SUBSIDIARIES
INDEX
Page
----
FACE SHEET 1
INDEX 2
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
Consolidated Balance Sheets at
October 31, 1997 and July 31, 1997 4
Consolidated Statements of
Operations and Accumulated Deficit
Three Months Ended October 31, 1997 & 1996 5
Six Months Ended October 31, 1997 and 1996 6
Statement of Cash Flows
Six Months Ended October 31, 1997 and 1996 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9-11
PART II. - OTHER INFORMATION AND SIGNATURE 12
2
<PAGE>
FINANCIAL
INFORMATION
ENERGY RESERVE, INC AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Energy Reserve, Inc. and its subsidiaries, Twin Chart, Inc., its subsidiary
Transit Services, Inc., Energy Reserve Holdings, Inc., and Energy Reserve
Financial Corporation (collectively the Company), engage in the business of
acquiring, developing and selling oil, gas and mineral properties and producing
and selling crude oil and natural gas for its own account in the United States
and in the manufacture and distribution of temperature recording instruments.
The Consolidated Financial Statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and data notes thereto included in the Company's annual report on
Form 10-K, for the year ended April 30, 1997
In the opinion of the Company, all adjustments have been included which are
necessary for the preparation of the balance sheets of Energy Reserve, Inc. and
consolidated subsidiaries at October 31, 1997 and April 30, 1997 and to a fair
statement of the results of operations for the three months ended October 31,
1997 and 1996 and for the six months ended October 31, 1997 and 1996.
3
<PAGE>
ENERGY RESERVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, April 30,
1997 1997
---- ----
ASSETS
CURRENTS ASSETS:
Cash $ 1,114,460 $ 1,118,019
Accounts receivable 1,152,449 1,131,873
Inventory (Note A) 726,990 757,492
Investment in securities 64,500 64,500
Notes receivable-current portion 370,627 39,579
Prepaid expenses 199,149 10,508
------------ ------------
TOTAL CURRENT ASSETS 3,628,175 3,121,971
Property and equipment (net) 3,682,052 3,748,808
Deposits 3,890 3,890
Goodwill 49,720 78,687
------------ ------------
$ 7,363,837 $ 6,953,356
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 439,626 $ 489,740
Income taxes payable 37,646 400
Current portion of long-term debt 512,331 585,859
------------ ------------
TOTAL CURRENT LIABILITIES 989,603 1,075,999
Long-term debt 272,582 358,686
Minority Interest -0- 2,674
------------ ------------
1,262,185 1,437,359
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note C )
STOCKHOLDERS' EQUITY
Common stock, no par value: authorized
100,000,000 shares; issued and outstanding
19,905, 188 shares at October 31, 1997
and at April 30, 1997 20,041,562 20,041,562
Contributed Capital 220,872 220,872
Retained earnings (deficit) (13,079,632) (13,665,287)
Less - notes receivable for common stock issued (875,650) (875,650)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 6,101,652 5,515,997
------------ ------------
$ 7,363,837 $ 6,953,356
============ ============
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
ENERGY RESERVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Three Months Ended October 31,
------------------------------
1997 1996
---- ----
REVENUE
Sales $ 2,086,957 $ 1,881,774
------------ ------------
COSTS AND EXPENSES
Cost of sales 986,501 818,611
General and administrative expenses 430,889 407,815
Sales expense 344,509 278,768
Interest expense 16,618 17,991
Depreciation and depletion 11,817 9,803
------------ ------------
TOTAL EXPENSE 1,790,334 1,532,988
------------ ------------
INCOME FROM OPERATIONS 296,623 348,786
OTHER INCOME (expense)
Other income (expense) 14,776 (136,691)
------------ ------------
Earnings before income taxes 311,399 212,095
Provisions for income taxes (note B) 12,011 -0-
------------ ------------
NET EARNINGS 299,388 212,095
ACCUMULATED DEFICIT, beginning of period (13,379,020) (14,299,736)
------------ ------------
ACCUMULATED DEFICIT, end of period $(13,079,632) $(14,087,641)
============ ============
EARNINGS PER SHARE:
Net earnings (loss) $ 0.01 $ 0.01
============ ============
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
ENERGY RESERVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Six Months Ended October 31,
------------------------------
1997 1996
---- ----
REVENUE
Sales $ 4,244,312 $ 3,759,208
------------ ------------
COSTS AND EXPENSES
Cost of sales 1,992,506 1,905,854
General and administrative expenses 944,961 863,976
Sales expense 625,087 513,243
Interest expense 34,906 33,773
Depreciation and depletion 22,048 20,462
------------ ------------
TOTAL EXPENSE 3,619,508 3,337,308
------------ ------------
INCOME FROM OPERATIONS 624,804 421,900
OTHER INCOME (EXPENSE)
Other income (expense) (748) 26,432
------------ ------------
Earnings before income taxes 624,056 448,332
Provisions for income taxes (note B) 38,401 45
------------ ------------
NET EARNINGS 585,655 448,287
ACCUMULATED DEFICIT, beginning of period (13,665,287) (14,535,928)
------------ ------------
ACCUMULATED DEFICIT, end of period $(13,079,632) $(14,087,641)
============ ============
EARNINGS PER SHARE:
Net earnings (loss) $ 0.03 $ 0.02
============ ============
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
ENERGY RESERVE, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
Six Months Ended October 31,
----------------------------
1997 1996
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings $ 585,655 $ 448,287
Adjustments to reconcile net earnings
to net cash used by operating activities:
Depreciation and depletion 22,048 20,462
CHANGES IN CURRENT ASSETS AND CURRENT LIABILITIES
(Increase) decrease in current assets:
Accounts receivable (20,576) (164,659)
Inventory 30,502 111,605
Prepaid expenses (188,641) (3,576)
Notes receivable and investments (331,048) 14,804
(Increase) decrease in non-current assets
Deferred taxes -0- 3,241
Notes receivable - long term -0- (6,895)
Goodwill 28,967 -0-
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses (50,114) (231,119)
Income Taxes Payable (37,246) -0-
---------- ---------
NET CASH FROM OPERATING ACTIVITIES 39,547 192,150
---------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
property and equipment-net disposal 40,324 (3,595)
minority interest 2,674 -0-
---------- ---------
NET CASH FROM INVESTING ACTIVITIES 42,998 (3,595)
---------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Repayment on long term debt (86,104) (145,044)
---------- ---------
NET CASH FROM INVESTING ACTIVITIES (86,104) (145,044)
---------- ---------
NET INCREASE (DECREASE) IN CASH (3,559) 43,511
CASH, beginning of year 1,118,019 614,356
---------- ---------
CASH, end of year $1,114,460 $ 657,867
========== =========
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
ENERGY RESERVE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 31, 1997
NOTE A - INVENTORY
Inventory at October 31, 1997 and April 30, 1997 consists of the following:
1997
----------------------------
October 31, April 30,
----------- ---------
Raw materials $246,341 $263,849
Work-in-progress 162,934 254,188
Finished goods 315,259 112,626
Crude oil 2,456 2,456
-------- --------
$726,990 $633,119
======== ========
NOTE B - INCOME TAXES
The Company and its subsidiaries file consolidated Federal income tax returns
and separate State income tax returns.
The Company's provision for income taxes is determined after application of a
portion of its net operating loss carry forward. As of October 31, 1997 the
Company's unused net operating loss carry forward was $9,581,886.
NOTE C - COMMITMENTS AND CONTINGENCIES
There have been no changes in the disclosures of commitments, contingencies and
litigation as contained in the Company's annual report Form 10-K for the year
ended April 30, 1997
8
<PAGE>
FINANCIAL
INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1997 the Company had a working capital of $2,638,572. This is an
improvement of $592,600 for the six months period May 1, 1997 to October 31,
1997. This was accomplished from the operating activities of the temperature
recording industry segment, which business is conducted through Transit
Services, Inc. under the style of Cox recorders.
The Company did not incur any long-term debt during this period and investment
in property and equipment was minimal. At present, cash flow from operations is
adequate to meet the cash requirements and commitments of the Company. However,
the Company plans to enter into equity, debt or other financing arrangements to
meet its future financial needs for expansion and:
(a) To resume drilling and work over activities at its
Chico Martinez oil field;
(b) To provide for general working capital needs;
(c) To repay outstanding liabilities.
COMPARISON OF OPERATIONS FOR SECOND FISCAL QUARTER ENDED OCTOBER 31, 1997 AND
1996
Consolidated net earnings for the second fiscal quarter ended October 31, 1997
were $299,388 as compared to $212,095 for the same period of 1996. This is an
improvement of $87,293. The consolidated income from operations for the second
quarter was $296,623 for 1997 as compared to $348,786 for 1996.
9
<PAGE>
COMPARISON OF OPERATIONS FOR QUARTER ENDED (CONTINUED)
The following schedule reflects the operations of the two industry segments of
the Company for the three months ended October 31, 1997 and 1996.
Three Months Ended October 31,
-----------------------------------------------
1997 1996
----------------------- ----------------------
Oil Temperature Oil Temperature
Production Recorders Production Recorders
---------- --------- ---------- ---------
Sales $ 3,560 $2,083,397 $ -0- $1,881,774
Cost of sales 643 985,858 1,415 817,196
General & Administrative 27,154 403,735 15,656 392,159
Sales expense 344,509 -0- 278,768
Interest 8,258 8,360 8,083 9,908
Depreciation/Amortization 994 10,823 1,988 7,815
-------- ---------- --------- ----------
Income ( loss) from operations (33,489) 330,112 (27,142) 375,928
Other Income (loss) -0- 14,776 6,243 (142,934)
-------- ---------- --------- ----------
Earnings (loss) -
before income taxes (33,489) 344,888 (20,899) 232,994
Income taxes -0- 12,011 0 0
-------- ---------- --------- ----------
Net earnings (loss) $(33,489) $ 332,877 $ (20,899) $ 232,994
======== ========== ========= ==========
The oil production industry segment had sales from production during this
quarter of 1997 and the Company expects to have increased crude oil production
and sales at its Chico Martinez oil field in Kern Country, California during the
balance of its fiscal year.
The increase of $11,498 in General and Administrative expenses in 1997 as
compared to 1996 was due primarily to costs associated with its annual
shareholders meeting.
Temperature recorder operations showed improvement in both sales and net
earnings for the three months ended October 31, 1997 as compared to the same
period for 1996. Sales increased $201,623. Other expense of $142,934 for 1996
includes a one time charge of $150,000 for royalties related to prior year sales
that were paid during this quarter in settlement of pending litigation.
10
<PAGE>
COMPARISON OF OPERATIONS FOR SIX MONTHS ENDED OCTOBER 31, 1997 AND 1996
The statement of operations for the six months ended October 31, 1997 and 1996.
Includes the operating activities of the Company's subsidiary, Twin Chart, Inc.,
and its wholly owned subsidiary, Transit Services, Inc.
There was a consolidated net earnings of $585,655 for the period ended October
31, 1997, as compared to a net earnings of $448,287 for the same period ended
October 31, 1996. However, to afford better analysis and comparison of the
similar periods of 1997 and 1996, the following schedule segregates the
operations by industry segments and provides a comparison of the oil production
operations and the temperature recorder operations.
<TABLE>
<CAPTION>
INDUSTRY SEGMENT Oil Production Temp.Record Oil Production Temp Record
-----------------------------------------------------------
May 1, May 1, May 1, May 1,
PERIOD Oct. 31,1997 Oct. 31,1997 Oct. 31,1996 Oct. 31,1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATIONS:
REVENUE $ 17,734 $4,226,578 $ 566 $ 3,759,208
--------- ---------- --------- -----------
COST OF SALES:
Cost of sales 7,893 1,984,613 1,660 1,904,439
General & administrative expenses 62,465 882,496 30,010 831,414
Sales expense -0- 625,087 -0- 513,243
Interest expense 16,516 18,390 21,855 17,607
Depreciation & depletion 1,988 20,060 -0- 18,474
--------- ---------- --------- -----------
TOTAL 88,862 3,530,646 53,525 3,285,177
--------- ---------- --------- -----------
INCOME (LOSS) FROM OPERATIONS (71,128) 695,932 (52,959) 474,031
OTHER INCOME (expense): (31,919) 31,171 (306,035) (137,635)
--------- ---------- --------- -----------
Earnings (loss) before income taxes (103,047) 727,103 (358,994) 336,396
Provisions for income taxes 1,155 37,246 -0- -0-
--------- ---------- --------- -----------
NET EARNINGS (LOSS) ($104,202) 689,857 $(358,994) $ 336,396
========= ========== ========= ===========
</TABLE>
Temperature recorder segment operations resulted in an income from operations of
$695,932 for the six months period ended October 31, 1997 as compared to
$474,031 for the same period ended in 1997. This was accomplished by increased
sales of $467,370 less increased costs and expenses of $245,469.
Temperature recorder segment other income increased $ 168,806 for the six months
period ended October 31, 1997 as compared to the same period ended in 1996. This
was due primarily to a payment of $150,000 in the second quarter of 1996 in
complete and full satisfaction of a claim for royalties pertaining to prior
years operations.
11
<PAGE>
OTHER
INFORMATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the annual report Form 10-K of the Company for the year
ended April 30, 1997, relative to legal proceedings and litigation. No charges
or determinations have occurred on such proceedings during the quarter covered
by this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) No exhibits are filed as a part of this report.
(b) There were no Form 8-K's filed by the Company during
the quarter ended October 31, 1997.
SIGNATURES
Pursuant to the requirements of the securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENERGY RESERVE, INC.
Date December 15, 1997 /s/ James L Cox
----------------------------------------
James L Cox, President Chief Executive
Officer, and Director
Date December 15, 1997 /s/ Alfred P. Sprenger
----------------------------------------
Alfred P. Sprenger. Chairman
Date December 15, 1997 /s/ Robert W. Dupree
----------------------------------------
Robert W. Dupree, Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FINANCIAL REPORT OF ENERGY RESERVE, INC. AS SUBMITTED TO THE SECURITIES AND
EXCHANGE COMMISSION FOR THE QUARTER ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,114,460
<SECURITIES> 64,500
<RECEIVABLES> 1,152,449
<ALLOWANCES> 0
<INVENTORY> 726,990
<CURRENT-ASSETS> 3,628,175
<PP&E> 3,680,052
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,363,837
<CURRENT-LIABILITIES> 989,603
<BONDS> 0
0
0
<COMMON> 20,041,562
<OTHER-SE> (13,734,410)
<TOTAL-LIABILITY-AND-EQUITY> 7,363,837
<SALES> 2,086,957
<TOTAL-REVENUES> 2,086,957
<CGS> 986,501
<TOTAL-COSTS> 1,790,334
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,618
<INCOME-PRETAX> 311,399
<INCOME-TAX> 12,011
<INCOME-CONTINUING> 296,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299,388
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
