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, 1998
Commission file number 0-3492
RESERVE INDUSTRIES CORPORATION
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(Name of Small Business Issuer in its charter)
NEW MEXICO 85-0128783
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 First Plaza, Suite 308, Albuquerque, New Mexico 87102
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Address of principal executive offices) (Zip Code)
505-247-2384
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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
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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, 1998 - 3,203,763 shares $1.00 Par Value
<PAGE>
INDEX
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Page No.
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PART I. Financial Information
Consolidated Balance Sheets
August 31, 1998 and November 30, 1997 1
Consolidated Statements of Income
Third quarter and nine months ended
August 31, 1998 and 1997 2
Consolidate Statements of Cash Flows
Third quarter ended
August 31, 1998 and 1997 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis or
Plan of Operation 5
PART II. Other Information 6
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<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1998 AND NOVEMBER 30, 1997
(UNAUDITED)
</CAPTION>
<S> <C> <C>
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 31,294 $ 653,906
Receivables, less allowance for doubtful accounts
of $46,332 in 1998 and 1997 187,043 159,751
Receivables from affiliates and related parties 524,711 516,430
Inventories 152,106 99,493
Prepaid expenses and deposits 35,266 28,048
----------- ------------
Total current assets 930,420 1,457,628
PROPERTY, PLANT AND EQUIPMENT, at cost 4,210,585 4,119,171
Less accumulated depreciation and depletion (1,415,093) (1,252,112)
----------- -----------
Total property, plant and equipment 2,795,492 2,867,059
INVESTMENT IN UNCONSOLIDATED AFFILIATES 5,556,320 5,377,316
----------- -----------
Total assets $ 9,282,232 $ 9,702,003
=========== ===========
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 936,979 943,979
Trade accounts payable 165,317 396,985
Deferred obligations to related parties 2,482,365 2,340,310
Other current liabilities 671,184 593,560
----------- -----------
Total current liabilities 4,448,426 4,467,415
LONG-TERM DEBT, less current portion 134,900 269,464
DISCONTINUED OPERATIONS - L-Bar Products 973,245 973,246
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized 6,000,000
shares, issued and outstanding 3,203,763 shares
in 1998 and 1997 3,203,763 3,203,763
Additional paid-in capital 7,458,718 7,458,718
Accumulated deficit (6,936,820) (6,670,603)
----------- -----------
Total stockholders' investment 3,725,661 3,991,878
----------- -----------
Total liabilities and stockholders' investment $ 9,282,232 $ 9,702,003
=========== ===========
The accompanying notes are an integral part of these consolidated
statements. The 1998 and 1997 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, 1998 AND 1997
(UNAUDITED)
Third Quarter Ended Nine Months Ended
AUGUST 31 AUGUST 31
1998 1997 1998 1997
</CAPTION>
<S> <C> <C> <C> <C>
REVENUES:
Sales $ 227,994 $ 453,547 $ 781,374 $ 1,187,858
Investment income 1,273 12,216 8,363 12,216
Gain on sales of property
and equipment 1,500 - 3,505 1,010
Gain on sale of stock - 408,245 - 408,425
Income from affiliates:
Interest Income - 2,987 - 7,746
Equity in earnings 88,123 181,638 511,908 665,660
Consulting fees 15,000 15,000 45,000 45,000
Other 11,011 - 11,298 -
---------- ---------- ---------- -----------
Total revenues 344,901 1,073,633 1,361,448 2,327,915
COSTS AND EXPENSES:
Cost of sales 171,298 362,477 697,777 971,469
General and administration 224,144 203,750 634,271 605,940
Interest 34,185 42,437 105,777 124,486
Depreciation and amortization 63,741 55,155 189,841 165,512
---------- ---------- ---------- -----------
Total costs and expenses 493,368 663,819 1,627,666 1,867,407
Income (loss) from
continuing operations (148,467) 409,814 (266,218) 460,508
PROVISION FOR INCOME TAXES: - 139,337 - 156,573
Income (loss) before ---------- ---------- ---------- -----------
extraordinary item (148,467) 270,477 (266,218) 303,935
EXTRAORDINARY ITEM:
Reduction of income taxes from
net operating loss carryforward - 139,337 - 156,573
---------- ---------- ----------- ----------
Net income (loss) $ (148,467)$ 409,814 $ (266,218)$ 460,508
EARNINGS (LOSS) PER SHARE:
Income (loss) before
extraordinary item $ (0.05) $ 0.09 $ (0.08) $ 0.09
Extraordinary item - 0.04 - 0.05
---------- ---------- ----------- ----------
Net income (loss) per share $ (0.05) $ 0.13 $ (0.08) $ 0.14
Weighted Average Number of Shares of
Common Stock Outstanding 3,203,763 3,203,763 3,203,763 3,203,763
The accompanying notes are an integral part of these consolidated
statements. The 1998 and 1997 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, 1998 AND 1997
(UNAUDITED)
</CAPTION>
Nine Months Ended
August 31
<S> <C> <C>
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income from continuing operations $ (266,218) $ 460,508
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 189,841 165,512
Equity in earnings of affiliates (556,908) (665,660)
Cash distribution from affiliates 377,904 939,516
Changes in assets and liabilities:
(Increase) in receivables (35,573) (73,693)
(Increase) in inventories (52,613) (18,826)
(Increase) in other current assets (7,218) (4,975)
Decrease in other investments - 55,710
(Decrease) in trade accounts payable (231,668) (89,091)
Increase in accrued officers salaries 142,055 179,236
Increase in other current liabilities 77,624 18,136
----------- ----------
Total adjustments (96,556) 505,865
Net cash (used) provided by operating activities (362,774) 966,373
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (118,274) (72,653)
----------- ----------
Net cash (used) by investing activities (118,274) (72,653)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in long-term debt (141,564) (152,366)
----------- ----------
Net cash (used) by financing activities (141,564) (152,366)
Net (decrease) increase in cash
and cash equivalents $ (622,612) $ 741,354
Cash and cash equivalents at the beginning of the year 653,906 15,332
Cash and cash equivalents at the end of the quarter $ 31,294 $ 756,686
=========== ==========
The accompanying notes are an integral part of these consilidated
statements. The 1998 and 1997 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, 1997 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
1997, 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, 1998 compared
with the third quarter ended August 31, 1997
For the third quarter ended August 31, 1998 the Company had a
net loss from operations of $148,467 or $0.05 per share as
compared to net income from operations of $409,814 or $0.13 per
share for the same period last year.
The Company's revenues for the third quarter were $344,901 as
compared to $1,073,633 for the same period last year. The
revenues decreased because of decreased sales and equity
earnings, and a decrease in the gain from the sale of stock.
The general and administration costs increased from last year to
$224,144 from $203,750. 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, 1998 compared
with the Nine months ended August 31, 1998
For the nine months ended August 31, 1998 the Company had a net
loss from operations of $266,218 or $0.08 per share as compared
to net income from operations of $460,508 or $0.14 per share
for the same period last year.
The Company's revenues for the nine months were $1,316,448 as
compared to $2,327,915 for the same period last year. The
revenues decreased because of decreased sales and equity
earnings, and a decrease in the gain from the sale of stock.
The general and administration costs increased from last year to
$634,271 from $605,940. 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, 1997 to August 31, 1998
Working capital decreased $508,219 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 $118,274 and net reductions in long
term debt of $141,564 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 Registrant is continuing its review of
discovery materials provided by Northwest Alloy's. Northwest
Alloys. During the quarter, a mediation was held on the
litigation and depositions have been postponed pending the
results of the mediation process.
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 - Exhibit 27
(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
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(Registrant)
/s/ William J. Melfi
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William J. Melfi, Vice President
Finance and Administration
(Principal Financial and Accounting
Officer and Authorized Officer)
Date: October 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> NOV-30-1998 NOV-30-1997 NOV-30-1998 NOV-30-1997
<PERIOD-END> AUG-31-1998 AUG-31-1997 AUG-31-1998 AUG-31-1997
<CASH> 31,294 653,906 31,924 653,906
<SECURITIES> 0 0 0 0
<RECEIVABLES> 757,481 722,513 757,481 722,513
<ALLOWANCES> 46,332 46,332 46,332 46,332
<INVENTORY> 152,106 99,493 152,106 99,493
<CURRENT-ASSETS> 930,420 1,457,628 930,420 1,457,628
<PP&E> 4,210,585 4,119,171 4,210,585 4,119,171
<DEPRECIATION> (1,415,093) (1,252,112) (1,415,093) (1,252,112)
<TOTAL-ASSETS> 9,282,232 9,702,003 9,282,232 9,703,003
<CURRENT-LIABILITIES> 4,448,426 4,467,415 4,448,426 4,467,415
<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> 521,898 788,115 521,898 788,115
<TOTAL-LIABILITY-AND-EQUITY> 9,282,232 9,702,003 9,282,232 9,702,003
<SALES> 227,994 453,547 781,374 1,187,858
<TOTAL-REVENUES> 344,901 1,073,633 1,361,448 2,327,915
<CGS> 171,298 362,477 697,777 971,469
<TOTAL-COSTS> 459,183 621,382 1,521,889 1,742,921
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 34,185 42,437 105,777 124,486
<INCOME-PRETAX> (148,467) 409,814 (266,218) 460,508
<INCOME-TAX> 0 139,337 0 156,573
<INCOME-CONTINUING> (148,467) 270,477 (266,218) 303,935
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 139,337 0 156,573
<CHANGES> 0 0 0 0
<NET-INCOME> (148,467) 409,814 (266,218) 460,508
<EPS-PRIMARY> (0.05) 0.13 (0.08) 0.14
<EPS-DILUTED> (0.05) 0.13 (0.08) 0.14
</TABLE>
