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 May 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
- ------------------------------- ------------------------------------
(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
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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
---- ----
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 July 13, 1998 - 3,203,763 shares $1.00 Par Value
<PAGE>
INDEX
Page No.
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PART I. Financial Information
Consolidated Balance Sheet
May 31, 1998 and November 30, 1997 1
Consolidated Statements of Income
Second quarter ended
May 31, 1998 and 1997 2
Consolidated Statements of Cash Flows
Second quarter ended
May 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
MAY 31, 1998 AND NOVEMBER 30, 1997
(UNAUDITED)
</CAPTION>
<S> <C> <C>
ASSETS 1998 1997
CURRENT ASSETS:
Cash and cash equivalents $ 146,296 $ 653,906
Receivables, less allowance for doubtful accounts
of $46,332 in 1998 and 1997 172,929 159,751
Receivables from affiliates and related parties 521,426 516,430
Inventory 128,242 99,493
Prepaid expenses and deposits 41,139 28,048
----------- -----------
Total current assets 1,010,032 1,457,628
PROPERTY, PLANT AND EQUIPMENT, at cost 4,153,792 4,119,171
Less accumulated depreciation and depletion (1,358,852) (1,252,112)
----------- -----------
Total property, plant and equipment 2,794,940 2,867,059
INVESTMENT IN UNCONSOLIDATED AFFILIATES 5,528,096 5,377,316
OTHER ASSETS - -
----------- -----------
Total assets $ 9,333,068 $ 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 939,979 943,979
Trade accounts payable 127,695 396,985
Deferred obligations to related parties 2,427,265 2,340,310
Other current liabilities 617,850 593,560
----------- -----------
Total current liabilities 4,305,370 4,467,415
LONG-TERM DEBT, less current portion 180,325 269,464
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 1998 and 1997 3,203,763 3,203,763
Additional paid-in capital 7,458,718 7,458,718
Accumulated deficit (6,788,354) (6,670,603)
----------- -----------
Total stockholders' investment 3,874,127 3,991,878
Total liabilities and stockholders' investment $ 9,333,068 $ 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 SECOND QUARTER AND SIX MONTHS ENDED MAY 31, 1998 AND 1997
(UNAUDITED)
</CAPTION>
Second Quarter Ended Six Months Ended
MAY 31 MAY 31
<S> <C> <C> <C> <C>
1998 1997 1998 1997
REVENUES:
Sales $ 266,630 $ 456,035 $ 553,380 $ 734,312
Investment income 3,197 36 7,090 67
Gains on sales of property and
equipment 2,006 10 2,006 1,010
Income from affiliates:
Interest Income - (29) - 4,691
Equity in earnings 183,885 200,542 423,785 484,022
Consulting fees 15,000 15,000 30,000 30,000
Other - - 287 -
--------- --------- --------- ---------
Total revenues 470,718 671,594 1,016,548 1,254,102
COSTS AND EXPENSES:
Cost of sales 236,668 312,922 526,479 608,992
General and administration 208,772 195,232 410,128 402,191
Interest 35,087 40,837 71,593 82,048
Depreciation and amortization 63,478 55,155 126,100 110,357
--------- --------- --------- ---------
Total costs and expenses 544,005 604,146 1,134,300 1,203,588
Income (loss) from continuing
operations (73,287) 67,448 (117,752) 50,514
PROVISION FOR INCOME TAXES: - - - -
Income (loss) before
extraordinary item (73,287) 67,448 (117,752) 50,514
EXTRAORDINARY ITEM:
Reduction of income taxes from
net operating loss carryforward - - - -
--------- --------- --------- ---------
Net income (loss) $ (73,287) $ 67,448 $(117,752) $ 50,514
EARNINGS (LOSS) PER SHARE:
Income (loss) before
extraordinary item $ (0.02) $ 0.02 $ (0.04) $ 0.02
Extraordinary item - - - -
--------- --------- --------- ---------
Net income (loss) per share $ (0.02) $ 0.02 $ (0.04) $ 0.02
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>
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<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MAY 31, 1998 AND 1997
(UNAUDITED)
Six Months Ended
May 31
<S> <C> <C>
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income from continuing operations $ (117,752) $ 50,514
Adjustments to reconcile net income from continuing
operations to net cash provided by operating
activities:
Depreciation and amortization 126,100 110,357
Equity in earnings of affiliates (453,785) (488,713)
Cash distribution from affiliates 303,005 866,521
Changes in assets and liabilities:
(Increase) in receivables (18,174) (94,764)
(Increase) in inventories (28,749) (10,292)
(Increase) in other current assets (13,091) (6,358)
(Decrease) in trade accounts payable (269,290) (52,729)
Increase in accrued officers salaries 86,955 126,442
Increase in other current liabilities 24,290 47,743
----------- -----------
Total adjustments (242,739) 498,207
Net cash (used) provided by operating activities (360,491) 548,721
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (53,980) (19,543)
----------- -----------
Net cash (used) by investing activities (53,980) (19,543)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in long-term debt (93,139) (101,748)
----------- -----------
Net cash (used) by financing activities (93,139) (101,748)
Net (decrease) increase in cash and
cash equivalents $ (507,610) $ 427,430
Cash and cash equivalents at the beginning of the year 653,906 15,332
Cash and cash equivalents at the end of the quarter $ 146,296 $ 442,762
=========== ===========
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
Second quarter ended May 31, 1998 compared
with the second quarter ended May 31, 1997
During the second quarter ended May 31, 1998 the Company had a net loss from
operations of $73,287 or $0.02 per share as compared to net income from
operations of $67,448 or $0.02 per share for the same period last year.
The Company's revenues from continuing operations for the second quarter
were $470,718 as compared to $671,591 for the same period last year.
The revenues decreased because of a decrease in sales and equity earnings.
The general and administration costs increased to $208,772 from $195,232.
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.
Six months ended May 31, 1998 compared
with the six months ended May 31, 1998
For the six months ended May 31, 1998 the Company had a net loss from
operations of $117,752 or $0.04 per share as compared to net income from
operations of $50,514 or $0.02 per share for the same period last year.
The Company's revenues for the six months were $1,016,548 as compared to
$1,254,102 for the same period last year. The revenues decreased because
of decreased sales and equity earnings. The general and administration
costs increased from last year from $402,191 to $410,128. 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 May 31, 1998
Working capital decreased $285,551 for the six 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 $53,980 and net
reductions in long term debt of $93,139 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 and to date its parent company Alcoa
has not fully complied with the Registrant's discovery request. The
Registrant has been assured that the remaining documents will be provided in
the near future. Depositions are scheduled to begin and the discovery phase
is scheduled to be completed in the fall of this year.
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: July 13, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> NOV-30-1998 NOV-30-1997 NOV-30-1998 NOV-30-1997
<PERIOD-END> MAY-31-1998 MAY-31-1997 MAY-31-1998 MAY-31-1997
<CASH> 146,296 653,906 146,296 653,906
<SECURITIES> 0 0 0 0
<RECEIVABLES> 219,261 206,083 219,261 206,083
<ALLOWANCES> 46,332 46,332 46,332 46,332
<INVENTORY> 128,242 99,493 128,242 99,943
<CURRENT-ASSETS> 1,010,032 1,457,628 1,010,032 1,457,628
<PP&E> 4,153,792 4,119,171 4,153,792 4,119,171
<DEPRECIATION> (1,358,852) (1,252,112) (1,358,582) (1,252,112)
<TOTAL-ASSETS> 9,333,068 9,702,003 9,333,068 9,702,003
<CURRENT-LIABILITIES> 4,305,370 4,467,415 4,305,370 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> 670,364 788,115 670,364 788,115
<TOTAL-LIABILITY-AND-EQUITY> 9,333,068 9,702,003 9,333,068 9,702,003
<SALES> 266,630 456,035 553,380 734,312
<TOTAL-REVENUES> 470,718 671,594 1,016,548 1,254,102
<CGS> 236,668 312,922 526,479 608,992
<TOTAL-COSTS> 272,250 250,387 536,228 512,548
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 35,087 40,837 71,593 82,048
<INCOME-PRETAX> (73,287) 67,448 (117,752) 50,514
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (73,287) 67,448 (117,752) 50,514
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (73,287) 67,448 (117,752) 50,514
<EPS-PRIMARY> (0.02) 0.02 (0.04) 0.02
<EPS-DILUTED> (0.02) 0.02 (0.04) 0.02
</TABLE>
