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 July 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 filled 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 August 31, 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
July 31, 1997 and April 30, 1997 4
Consolidated Statements of
Operations and Accumulated Deficit
Three Months Ended July 31, 1997 and 1996 5
Statement of Cash Flows
Three Months Ended July 31, 1997 and 1996 6-7
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 July 31, 1997 and April 30, 1997 and to a fair
statement of the results of operations for the three months ended July 31, 1997
and 1996.
<PAGE>
ENERGY RESERVE. INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 31, April 30,
1997 1997
---- ----
ASSETS
CURRENTS ASSETS:
Cash $ 1,51O,771 $ 1,118,019
Accounts receivable 1,097,180 1,131,873
Inventory (Note A) 601,982 757,492
Investment in securities 64,500 64,500
Notes receivable-current portion 37,420 39,579
Prepaid expenses 10,714 10,508
----------- -----------
TOTAL CURRENT ASSETS 3,322,567 3,121,971
Property and equipment (net) 3,692,875 3,748,808
Deposits 3,890 3,890
Goodwill 50,714 78,687
----------- -----------
$ 7,070,046 $ 6,953,356
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 438,551 $ 489,740
Income taxes payable (Note B) 25,635 400
Current portion of long-term debt 421,271 585,859
----------- -----------
TOTAL CURRENT LIABILITIES 885,457 1,075,999
Long-term debt 382,326 358,686
Minority interest -- 2,674
----------- -----------
1,267,782 1,437,359
=========== ===========
COMMITMENTS AND CONTINGENCIES (Note C )
STOCKHOLDERS' EQUITY
Common stock, no par value: authorized
100,000,000 shares; issued and outstanding
9,905,188 shares at July 31, 1997
and at April 30, 1997 20,041,562 20,041,562
Contributed Capital 220,872 220,872
Unrealized loss on available-for-sale securities (205,500) (205,500)
Accumulated (deficit) (13,379,020) (13,665,287)
Less - notes receivable for common stock issued (875,650) (875,650)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,802,264 5,515,997
$ 7,070,046 $ 6,953,356
============ ============
See notes to Financial Statement
4
<PAGE>
ENERGY RESERVE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Three Months Ended July 31
-----------------------------
1997 1996
------------ ------------
REVENUE
Sales $ 2,143,181 $1 877,434
COSTS AND EXPENSES
Cost of sales 1,006,005 1,087,243
General and administrative expenses 498,412 456,161
Sales expense 280,578 234,475
Interest expense 18,288 15,782
Depredation and depletion 10,231 10,659
------------ ------------
TOTAL EXPENSE 1,813,514 1,804,320
------------ ------------
INCOME (LOSS) FROM OPERATIONS 329,667 73,114
OTHER INCOME (EXPENSE)
Other income (expense) (17,010) 163,123
------------ ------------
Earnings (loss) before income taxes 312,657 236,237
Provisions for income taxes (note B) 26,390 45
------------ ------------
NET EARNINGS (LOSS) 286,267 236,192
ACCUMULATED DEFICIT, beginning of period (13,665,287) (14,535,928)
------------ ------------
ACCUMULATED DEFICIT, end of period $(13,379,020) $(14,299,736)
============ ============
EARNINGS PER SHARE:
Net earnings $ 0.02 $ 0.02
============ ============
See notes to financial Statements
5
<PAGE>
ENERGY RESERVE INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
Three Months Ended July 31,
---------------------------
1997 1996
--------- ---------
CASH FLOW FROM OPERATlNG ACTIVITIES
Net earnings (loss) $ 286,267 $ 236,192
Adjustments to reconcile net earnings
(loss) to net cash used by operating activities:
Depreciation and depletion 10,231 10,659
CHANGES IN CURRENT ASSETS AND CURRENT LIABILITIES
(Increase) decrease in current assets:
Accounts receivable 34,693 (162,029)
Inventory 155,510 210,484
Prepaid expenses (206) (3,077)
Notes receivable and investments 2,159 37,692
(Increase) decrease in non-current assets
Deferred taxes 3,241
Notes receivable - long term (2,095)
Goodwill 27,973
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses (51,189) (289,970)
Income Taxes payable 25,235
--------- ---------
NET CASH FROM OPERATING ACTIVITIES 490,673 41,097
CASH FLOW FROM INVESTING ACTIVITIES
Property and equipment-net 45,702 (3,052)
CASH FLOW FROM FINANCING ACTIVITIES
Repayment on notes payable (143,623) (29,226)
--------- ---------
See notes to Financial Statements
6
<PAGE>
ENERGY RESERVE INC. AND SUBSIDIARIES
STATEMENT OF CASH PLOWS
(Continued)
Three Months Ended July 31,
---------------------------
1997 1996
--------- ---------
NET INCREASE (DECREASE) IN CASH 392,752 8,819
CASH, beginning of period 1,118,019 614,356
---------- --------
CASH, end of period $1,510,771 $623,175
========== ========
See Notes to Financial Statements
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Quarter Ended July 31, 1997
NOTE A - INVENTORY
Inventory at July 31, 1997 and April 30, 1997 and consists of the following:
1997
------------------------
July 31, April 30,
------- --------
Raw materials 170,216 279,338
Work-in-process 138,749 142,413
Finished goods 290,561 333,285
Crude all 2,456 2,456
-------- --------
$601,982 $757,492
======== ========
NOTE B - INCOME TAXES
The Company and its subsidiaries file consolidated Federal income tax returns
and separate State income tax returns.
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 July 31, 1997 the Company had a working capital of $2,437,110 This is an
improvement of $391,138 for the first quarter period May 1, 1997 to July 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 QUARTER ENDED JULY 31, 1997 and 1996
Net earnings for the first fiscal quarter ended July 31,1997 were $286,267 which
is an improvement of $50,075 from the $236,192 earning for the same period last
year. Earnings from operations for 1997 were $329,687, an improvement of
$256,553 over the 1996 first fiscal quarter earnings from operations.
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 April 30, 1997 and 1996,
Three Months Ended April 30,
----------------------------
1997 1996
------------------------ -----------------------
Oil Temperature Oil Temperature
Production Recorders Production Recorders
---------- --------- ---------- ---------
Sales $ 14,147 $2,129,007 $ -- $1,877,434
Cost of sales 7,250 998,755 1,087,243
General & Administrative 35,311 463,101 16,906 439,255
Sales expense 280,578 234,475
Interest 8,258 10,030 8,083 7,699
Depreciation/Amortization 10,231 10,659
-------- ---------- -------- ----------
Income (loss) from
operations (36,645) 366,312 (24,989) 98,103
Other Income (loss) (31,919) 14,909 157,824 5,299
Income taxes 1,155 25,235 45
-------- ---------- -------- ----------
Net earnings (loss) (69,719) 355,986 $132,790 $ 103,402
======== ========== ======== ==========
OIL PRODUCTION OPERATIONS:
For 1997, the oil production operations include the operations of the subsidiary
check cashing operations of National On-site Check Cashing, Inc. The three
months period of 1996 does not include such operations. There were no crude oil
sales for either 1997 or 1996. The sales income for 1997 was derived from check
cashing operations and $15,660 of general and administrative expense was
incurred by that operations
As of July 31, 1997 the Company liquidated the National On-Site Check Cashing
subsidiary at a loss of $31,919, which is shown as other loss in the above
industry segment analysis
The cost of sales was incurred from oil field maintenance and operations in
renewal of production activities.
10
<PAGE>
COMPARISON OF OPERATIONS - CONTINUED
TEMPERATURE RECORDER OPERATIONS
Temperature recorder operations showed marked improvement in both sales and
earnings for the three months ended July 31, 1997 as compared to the same period
for 1996. Sales increased $251,537 and cost of sales declined $88,488 due to
lower material costs and payroll expenses, The $23,846 increase in general and
administrative expense was due to increased payroll, legal, insurance and
transportation expenses. Sales expense increased $46,103 due to expenses related
to the increased sales volume. The earnings from temperature recorder operations
improved by $268,209 or 273% in 1997 over 1996. The increase in other income of
$9,610 was primarily due to interest earnings. The Company expects continued
improvement in its temperature recorder industry segment.
11
<PAGE>
OTHER
INFORMATION
PART Il-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 changes
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 one Form 8-K filed on July 22, 1997 by the Company during
the quarter ended July 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 8/22/97 /s/ Alfred P. Sprenger
----------- --------------------------------------------------------
Alfred P. Sprenger, Chairman and Chief Executive Officer
Date 8/22/97 /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
CONSOLIDATED FINANCIAL STATEMENTS OF ENERGY RESERVE, INC. FOR THE QUARTER ENDED
JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,510,771
<SECURITIES> 64,500
<RECEIVABLES> 1,027,180
<ALLOWANCES> 30,000
<INVENTORY> 601,982
<CURRENT-ASSETS> 3,322,567
<PP&E> 6,570,732
<DEPRECIATION> 2,877,857
<TOTAL-ASSETS> 7,070,046
<CURRENT-LIABILITIES> 885,457
<BONDS> 382,326
0
0
<COMMON> 19,386,784
<OTHER-SE> (13,584,520)
<TOTAL-LIABILITY-AND-EQUITY> 7,070,046
<SALES> 2,143,181
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<INCOME-TAX> 26,390
<INCOME-CONTINUING> 329,667
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<EXTRAORDINARY> (17,010)
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<NET-INCOME> 286,267
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</TABLE>
