U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly report under Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the quarterly period ended August 31, 1996
Commission file number 0-3492
RESERVE INDUSTRIES CORPORATION
----------------------------------------------
(Name of Small Business Issuer in its charter)
NEW MEXICO 85-0128783
- ------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S.Employer Identification No.)
Incorporation or Organization)
20 First Plaza, Suite 308, Albuquerque, New Mexico 87102
- -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
505-247-2384
- ----------------------------------------------
Issuer's telephone number, including area code
Check whether the issuer: (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 and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
State the number of shares of outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date. As of October 13, 1996 - 3,203,763 shares $1.00 Par Value
<PAGE>
INDEX
Page No.
PART I. Financial Information
Consolidated Balance Sheets
August 31, 1996 and November 30, 1995 1
Consolidated Statements of Income
Third quarter and nine months ended
August 31, 1996 and 1995 2
Consolidated Statements of Cash Flows
Nine months ended
August 31, 1996 and 1995 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II. Other Information 6
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<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1996 AND NOVEMBER 30, 1995
(UNAUDITED)
</CAPTION>
<S> <C> <C>
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $ 27,880 $ 36,383
Receivables,less allowance for doubtful
accounts of $45,882 in 1996
and $43,274 in 1995 222,451 185,757
Receivables from affiliates and related parties 503,820 396,881
Inventories 124,469 112,551
Prepaid expenses and deposits 13,980 30,973
------------ ------------
Total current assets 892,600 762,545
PROPERTY, PLANT AND EQUIPMENT, at cost 3,722,536 3,554,738
Less accumulated depreciation and depletion (1,077,883) (919,317)
------------ ------------
2,644,653 2,635,421
INVESTMENT IN UNCONSOLIDATED AFFILIATES 4,782,110 4,170,727
ORGANIZATION COSTS, less accumulated
amortization of $21,460 in 1996 and
$20,750 in 1995 - 710
GOODWILL, less accumulated amortization
of $30,000 in 1996 and $29,750 in 1995 - 250
OTHER ASSETS 55,710 55,710
----------- -----------
$ 8,375,073 $ 7,625,363
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term debt related party $ 145,000 $ 145,000
Short-term debt 47,581 47,581
Current portion of long-term debt 217,110 145,005
Trade accounts payable 312,747 450,785
Deferred obligations to related parties 1,931,561 1,651,537
Other current liabilities 530,968 436,448
----------- -----------
Total current liabilities 3,184,967 2,876,356
LONG-TERM DEBT, less current portion 1,150,303 1,034,634
DISCONTINUED OPERATIONS - L-Bar Products 973,246 973,069
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized
6,000,000 shares, issued and outstanding
3,203,763 shares in 1996 and 3,157,333
in 1995 3,203,763 3,157,333
Additional paid-in capital 7,458,718 7,458,718
Accumulated deficit (7,595,924) (7,874,747)
----------- -----------
Total stockholders'investment 3,066,557 2,741,304
----------- -----------
$ 8,375,073 $ 7,625,363
The accompanying notes are an integral part of these consolidated
statements. The 1996 and 1995 Financial Information is Unaudited.
</TABLE>
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<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRD QUARTER AND NINE MONTHS ENDED
AUGUST 31, 1996 AND 1995
(UNAUDITED)
</CAPTION>
Third Quarter Ended Nine Months Ended
AUGUST 31 AUGUST 31
<S> <C> <C> <C> <C>
1996 1995 1996 1995
REVENUES:
Sales $ 318,149 $ 398,170 $ 1,109,472 $ 1,325,993
Contract settlement - - - 344,791
Investment income 8,922 7,084 9,254 21,244
Gain (loss) on sales:
Marketable securities - - - 16,128
Property and equipment - - - (38,552)
Income (loss) from affiliates:
Interest income 7,412 - 21,572 -
Equity in earnings
(losses) 332,637 (53,269) 835,323 (59,539)
Consulting fees 15,000 15,000 45,000 45,000
Other (60) (110) 8,508 1,956
----------- ----------- ----------- -----------
682,060 366,875 2,029,129 1,657,021
COSTS AND EXPENSES:
Cost of sales 316,113 218,631 893,003 1,003,771
General and administration 196,987 181,576 582,174 611,200
Interest 41,104 30,126 115,602 89,403
Abandonment of assets - 8,531 - 8,531
Depreciation and
amortization 59,050 39,110 159,526 116,882
---------- ----------- ----------- -----------
613,254 477,974 1,750,305 1,829,787
Net income (loss) $ 68,806 $ (111,099)$ 278,824 $ (172,766)
EARNINGS (LOSS) PER SHARE:
Income from continuing
operations $ 0.02 $ (0.04)$ 0.09 $ (0.05)
Weighted Average Number
of Shares of Common
Stock Outstanding 3,180,675 3,149,854 3,180,675 3,149,854
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated
statements. The 1996 and 1995 Financial Information is Unaudited.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 31, 1996 AND 1995
(UNAUDITED)
Nine Months Ended
August 31
</CAPTION>
<S> <C> <C>
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing operations $ 278,823 $ (172,766)
Adjustments to reconcile net income from
continuing operations to net cash provided
by operating activities:
Abandonment Canadian assets - 8,531
Depreciation and amortization 159,526 116,882
Equity in (earnings) loss of affiliates (835,323) 59,421
(Increase) in interest receivable from affiliate (21,578) (21,240)
Cash distribution from affiliates 245,518 39,684
Changes in assets and liabilities:
(Increase) in receivables (143,633) (170,426)
(Increase) in inventories (11,918) (412)
Decrease in other current assets 16,993 11,908
(Decrease) increase in trade accounts payable (138,038) 44,706
Increase in deferred obligations 280,024 308,240
Increase in other current liabilities 94,520 82,463
----------- -----------
Total adjustments (353,909) 479,757
Net cash (used) provided by operating activities (75,086) 306,991
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Net (167,798) (360,822)
Discontinued operations - L-Bar Products 177 (19,352)
----------- -----------
Net cash used by investing activities (167,621) (380,174)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in common stock issued 46,430 10,000
Increase in short-term debt - 59,424
Increase long-term debt 187,774 178,730
----------- -----------
Net cash provided by financing activities 234,204 248,154
Net (decrease) increase in cash and cash
equivalents (8,503) 174,971
Cash and cash equivalents at beginning of year 36,383 22,940
Cash and cash equivalents at end of the quarter $ 27,880 $ 197,911
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 46,892 $ 24,919
The accompanying notes are an integral part of these consolidated
statements. The 1996 and 1995 Financial Information is Unaudited.
</TABLE>
<PAGE>
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying statements, which should be read in conjunction
with the Consolidated Financial Statements included in the
November 30, 1995 fiscal year end Annual Report filed on Form
10-KSB, are unaudited but have been prepared in the ordinary
course of business for the purpose of providing information with
respect to the interim periods, and are subject to audit at the
close of the year. However, it is the opinion of the management
of the Company that all adjustments (none of which were other
than normal recurring accruals) necessary for a fair
presentation of such periods have been included.
The Consolidated Financial Statements prepared for fiscal years
1995,1994, 1993, 1992 and 1991 were unaudited because the
Company elected to not incur the expense of an audit and to
conserve its cash for other corporate requirements.
In November 1992, the Company determined it would discontinue
the operations of L-Bar Products Incorporated (L-Bar), a wholly
owned subsidiary.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
Third quarter ended August 31, 1996 compared
with the third quarter ended August 31, 1995
During the third quarter ended August 31, 1996 the Company had
a net income from continuing operations of $68,806 or $0.02 per
share as compared to a loss from continuing operations of
$111,099 or $0.04 per share for the same period last year.
The Company's revenues from continuing operations for the third
quarter were $682,060 as compared to $366,875 for the same
period last year. The revenues for this year show a reduction
in sales which is offset by an increase in equity earnings. The
general and administration costs increased from last year from
$181,576 to $196,987. Some of the expenses contained in the
general and administrative costs pertaining to salaries of the
officers and deferred compensation have been accrued but not
paid as the Company is conserving its cash.
Nine months ended August 31, 1996 compared
with the nine months ended August 31, 1996
During the nine months ended August 31, 1996 the Company had a
net income from continuing operations of $287,824 or $0.09 per
share as compared to net loss from continuing operations of
$172,766 or $0.05 per share for the same period last year.
The Company's revenues from continuing operations for the nine
months were $2,029,129 as compared to $1,657,021 for the same
period last year. The revenues for this year show a reduction
in sales which is offset by an increase in equity earnings and
the revenues for last year included a contract settlement of
$344,791. The general and administration costs decreased from
last year from $582,174 to $611,200. Some of the expenses
contained in the general and administrative costs pertaining to
salaries of the officers and deferred compensation have been
accrued but not paid as the Company is conserving its cash.
Liquidity and Capital Resources
Period from December 1, 1996 to August 31, 1996
Working capital decreased $178,556 for the nine months. The
decrease in working capital includes salaries, directors fees,
deferred compensation and certain interest charges which have
been accrued but not paid. The Company made net capital
improvement expenditures of $167,798 during this period.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
In the matter of the Registrant and L-Bar Products vs
Northwest Alloys Inc. the discovery portion of the litigation is
proceeding. The Registrant has provided in excess of 34,000
pages of material pursuant to Northwest Alloy's discovery
request. The Registrant is in the process of reviewing
discovery materials provided by Northwest Alloy's. The
discovery process is scheduled to end in the spring of 1997.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - none
(b) Reports - none
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RESERVE INDUSTRIES CORPORATION
------------------------------
(Registrant)
/s/ William J. Melfi
--------------------------------
William J. Melfi, Vice President
Finance and Administration
(Principal Financial and Accounting
Officer and Authorized Officer)
Date: October 13, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> NOV-30-1996 NOV-30-1996
<PERIOD-END> AUG-31-1996 AUG-31-1996
<CASH> 27,880 27,880
<SECURITIES> 0 0
<RECEIVABLES> 772,153 772,153
<ALLOWANCES> (45,882) (45,882)
<INVENTORY> 124,469 124,469
<CURRENT-ASSETS> 892,600 892,600
<PP&E> 3,722,536 3,722,536
<DEPRECIATION> (1,077,883) (1,077,883)
<TOTAL-ASSETS> 8,375,073 8,375,073
<CURRENT-LIABILITIES> 3,184,967 3,184,967
<BONDS> 0 0
0 0
0 0
<COMMON> 3,203,763 3,203,763
<OTHER-SE> 137,206 137,206
<TOTAL-LIABILITY-AND-EQUITY> 8,375,073 8,375,073
<SALES> 1,109,472 318,149
<TOTAL-REVENUES> 2,029,129 682,060
<CGS> 896,003 316,113
<TOTAL-COSTS> 1,634,703 572,150
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 115,602 41,104
<INCOME-PRETAX> 278,824 68,806
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 278,824 68,806
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 278,824 68,806
<EPS-PRIMARY> 0.09 0.02
<EPS-DILUTED> 0.09 0.02
</TABLE>
