U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 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, 1997
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. EmployerIdentification 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 14, 1997 - 3,203,763 shares $1.00 Par Value
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1997 AND NOVEMBER 30,1996
(UNAUDITED)
</CAPTION>
<S> <C> <C>
ASSETS 1997 1996
CURRENT ASSETS:
Cash and cash equivalents $ 756,686 $ 15,332
Receivables, less allowance for
doubtful accounts of $45,582
in 1997 and 1996 208,637 202,819
Receivables from affiliates and
related parties 532,530 464,655
Inventories 111,399 92,573
Prepaid expenses and deposits 33,456 28,481
----------- -----------
Total current assets 1,642,708 803,860
PROPERTY, PLANT AND EQUIPMENT, at cost 3,819,564 3,772,373
Less accumulated depreciation and depletion (1,193,165) (1,053,114)
----------- -----------
2,626,399 2,719,259
INVESTMENT IN UNCONSOLIDATED AFFILIATES 4,590,323 4,864,179
OTHER ASSETS - 55,710
----------- -----------
$ 8,859,430 $ 8,443,008
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 216,675 237,463
Trade accounts payable 178,772 267,863
Deferred obligations to related parties 2,225,594 2,046,358
Other current liabilities 565,237 547,101
----------- -----------
Total current liabilities 3,378,859 3,291,366
LONG-TERM DEBT, less current portion 1,051,621 1,183,199
DISCONTINUED OPERATIONS - L-Bar Products 973,246 973,246
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized
6,000,000 shares, issued and outstanding
3,203,763 shares in 1997 and 1996 3,203,763 3,203,763
Additional paid-in capital 7,458,718 7,458,718
Accumulated deficit (7,206,777) (7,667,284)
----------- -----------
Total stockholders'investment 3,455,704 2,995,197
----------- -----------
$ 8,859,430 $ 8,443,008
The accompanying notes are an integral part of these consolidated
statements. The 1997 and 1996 financial information is unaudited.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRD QUARTER AND NINE MONTHS ENDED AUGUST 31, 1997 AND 1996
(UNAUDITED)
Third Quarter Ended Nine Months Ended
AUGUST 31 AUGUST 31
</CAPTION>
<S> <C> <C> <C> <C>
1997 1996 1997 1996
REVENUES:
Sales $ 453,547 $ 318,149 $ 1,187,858 $ 1,109,472
Investment income 12,216 8,922 12,216 9,254
Gain on sales:
Property and equipment - - 1,010 -
StocK 408,245 - 408,425 -
Income from affiliates:
Interest Income 2,987 7,412 7,746 21,572
Equity in earnings 181,638 332,637 665,660 835,323
Consulting fees 15,000 15,000 45,000 45,000
Other - (60) - 8,508
----------- ----------- ----------- -----------
Total revenues 1,073,633 682,060 2,327,915 2,029,129
COSTS AND EXPENSES:
Cost of sales 362,477 316,113 971,469 893,003
General and administration 203,750 196,987 605,940 582,174
Interest 42,437 41,104 124,486 115,602
Depreciation and amortization 55,155 59,050 165,512 159,526
----------- ----------- ----------- -----------
Total costs and expenses 663,819 613,254 1,867,407 1,750,305
Income from
continuing operations 409,814 68,806 460,508 278,824
PROVISON FOR INCOME TAXES 139,337 12,202 156,573 91,991
----------- ----------- ----------- -----------
Income before extraordinary item 270,477 56,605 303,935 186,833
EXTRAORDINARY ITEM:
Reduction of income taxes from
net operating loss carryforward 139,337 12,202 156,573 91,991
Net income $ 409,814 $ 68,806 $ 460,508 $ 278,824
=========== =========== =========== ===========
EARNINGS PER SHARE:
Income before extraordinary
item $ 0.09 $ 0.02 $ 0.09 $ 0.06
Extraordinary item 0.04 0.00 0.05 0.03
----------- ----------- ----------- -----------
$ 0.13 $ 0.02 $ 0.14 $ 0.09
=========== =========== =========== ===========
Weighted Average Number of
Shares of Common Stock
Outstanding 3,203,763 3,180,675 3,203,763 3,180,675
The accompanying notes are an integral part of these consolidated
statements. The 1997 and 1996 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, 1997 AND 1996
(UNAUDITED)
Nine Months Ended
August 31
</CAPTION>
<S> <C> <C>
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 460,508 $ 278,823
Adjustments to reconcile net income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 165,512 159,526
Equity in (earnings) of affiliates (665,660) (835,323)
(Increase) in interest receivable
from affiliate - (21,578)
Cash distribution from affiliates 939,516 245,518
Changes in assets and liabilities:
(Increase) in receivables (73,693) (143,633)
(Increase) in inventories (18,826) (11,918)
(Increase) decrease in other current assets (4,975) 16,993
Decrease in other investments 55,710 -
(Decrease) trade accounts payable (89,091) (138,038)
Increase in accrued officer salaries 179,236 280,024
Increase in other current liabilities 18,136 94,520
----------- -----------
Total adjustments 505,865 (353,909)
Net cash provided (used) by operating
activities 966,373 (75,086)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (72,653) (167,798)
Discontinued operations - L-Bar Products - 177
----------- ----------
Net cash (used) by investing activities (72,653) (167,621)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in common stock issued - 46,430
(Decrease) increase long-term debt (152,366) 187,774
----------- ----------
Net cash (used) provided by financing
activities (152,366) 234,204
Net increase (decrease) in cash and
cash equivalents 741,354 (8,503)
Cash and cash equivalents at beginning of year 15,332 36,383
----------- ----------
Cash and cash equivalents at end of the quarter $ 756,686 $ 27,880
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 60,938 $ 46,892
The accompanying notes are an integral part of these consolidated
statements. The 1997 and 1996 Financial Information is Unaudited
</TABLE>
<PAGE>
INDEX
Page No.
--------
PART I. Financial Information
Consolidated Balance Sheets
August 31, 1997 and November 30, 1996 1
Consolidated Statements of Income
Third quarter and nine months ended
August 31, 1997 and 1996 2
Consolidated Statements of Cash Flows
Nine months ended
August 31, 1997 and 1996 3
Footnotes to Consolidated Financial Statement 4
Management's Discussion and Analysis or
Plan of Operation 5
PART II. Other Information 6
<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, 1996 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
1996, 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 to 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, 1997 compared
with the third quarter ended August 31, 1996
For the third quarter ended August 31, 1997, the Company had
net income from operations of $409,994 or $0.13 per share as
compared to net income from operations of $68,806 or $0.02 per
share for the same period last year. Included in the net income
and earnings per share is an extraordinary item relating to the
reduction of taxes from the use of the Company's net operating
loss carryforward, which amounted to $139,398 or $0.04 per share
and $12,202 or less than $0.01 per share, respectively.
The Company's revenues for the third quarter were $1,073,813 as
compared to $682,060 for the same period last year. The
revenues increased as a result of an increase in sales and a
gain of $408,245 on a sale of stock. These increases were
offset by a decrease in equity earnings. The general and
administration costs were comparable to the same period last
year. 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, 1997 compared
with the nine months ended August 31, 1996
For the nine months ended August 31, 1997, the Company had net
income from operations of $460,508 or $0.14 per share as
compared to net income from operations of $278,824 or $0.09 per
share for the same period last year. Included in the net income
and earnings per share is an extraordinary item relating to the
reduction of taxes from the use of the Company's net operating
loss carryforward, which amounted to $156,573 or $0.05 per share
and $91,991 or $0.03 per share, respectively.
The Company's revenues for the nine months were $2,327,915 as
compared to $2,029,129 for the same period last year. The
revenues increased as a result of an increase in sales and a
gain of $408,245 on a sale of stock. These increases were
offset by a decrease in equity earnings. The general and
administration costs were comparable to the same period last
year. 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.
<PAGE>
Liquidity and Capital Resources
Period from December 1, 1996 to August 31, 1997
Working capital increased $751,355 for the nine months partly
as a result of a payment in loans from unconsolidated affiliates
and the proceeds from the sale of stock. Included in the
working capital deficit are liabilities for salaries, directors
fees, deferred compensation and certain interest charges which
have been accrued but not paid. The Company made net capital
improvement expenditures of $72,653 during this period.
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 is continuing its review of
discovery materials provided by Northwest Alloy's and is
awaiting the remainder of the materials which are to be provided
by Northwest Alloys.
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 14, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> NOV-30-1997 NOV-30-1996 NOV-30-1997 NOV-30-1996
<PERIOD-END> AUG-31-1997 AUG-31-1996 AUG-31-1997 AUG-31-1996
<CASH> 756,686 15,332 756,686 15,332
<SECURITIES> 0 0 0 0
<RECEIVABLES> 786,749 713,056 786,749 713,056
<ALLOWANCES> (45,582) (45,582) (45,582) (45,582)
<INVENTORY> 111,399 92,573 111,399 92,573
<CURRENT-ASSETS> 1,642,708 803,860 1,642,708 803,860
<PP&E> 3,819,564 3,772,373 3,819,564 3,772,373
<DEPRECIATION> (1,193,165) (1,053,114) (1,193,165) (1,053,114)
<TOTAL-ASSETS> 8,859,430 8,443,008 8,859,430 8,443,008
<CURRENT-LIABILITIES> 3,378,859 3,291,366 3,378,859 3,291,366
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 3,203,763 3,203,763 3,203,763 3,203,763
<OTHER-SE> 251,941 (208,566) 251,941 (208,566)
<TOTAL-LIABILITY-AND-EQUITY> 8,859,430 8,443,008 8,859,430 8,443,008
<SALES> 453,547 318,149 1,187,858 1,109,472
<TOTAL-REVENUES> 1,073,633 682,060 2,327,915 2,029,129
<CGS> 362,477 316,113 971,469 893,003
<TOTAL-COSTS> 621,382 572,150 1,742,921 1,634,703
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 42,437 41,104 124,486 115,602
<INCOME-PRETAX> 409,814 68,806 460,508 278,824
<INCOME-TAX> 139,337 12,202 153,573 91,991
<INCOME-CONTINUING> 270,477 56,605 303,935 186,833
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 139,337 12,202 156,573 91,991
<CHANGES> 0 0 0 0
<NET-INCOME> 409,814 68,806 460,508 278,824
<EPS-PRIMARY> 0.13 0.02 0.14 0.09
<EPS-DILUTED> 0.13 0.02 0.14 0.09
</TABLE>
