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 February 28, 1999
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
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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 April 12, 1999 - 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
February 28, 1999 and November 30, 1998 1
Consolidated Statements of Income
First quarter ended
February 28, 1999 and 1998 2
Consolidated Statements of Cash Flows
First quarter ended
February 28, 1999 and 1998 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis or Plan of Operation 5-7
PART II.
Other Information 7
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<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1999 AND NOVEMBER 30, 1998
(UNAUDITED)
</CAPTION>
<S> <C> <C>
ASSETS 1999 1998
CURRENT ASSETS:
Cash and cash equivalents $ 13,020 $ 41,220
Receivables, less allowance for doubtful accounts
of $46,332 in 1999 and 1998 147,195 160,568
Receivables from affiliates and related parties 509,544 489,544
Inventories 121,391 216,950
Prepaid expenses and deposits 20,312 26,976
------------ ------------
Total current assets 811,462 935,258
PROPERTY, PLANT AND EQUIPMENT, at cost 3,794,068 3,778,532
Less accumulated depreciation and depletion (1,184,277) (1,131,668)
------------ ------------
Total property, plant and equipment 2,609,791 2,646,864
INVESTMENT IN UNCONSOLIDATED AFFILIATES 3,730,525 4,030,523
------------ ------------
Total assets $ 7,151,778 $ 7,612,645
============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term debt related party $ 175,000 $ 175,000
Short-term debt - -
Current portion of long-term debt 925,324 954,340
Trade accounts payable 287,362 295,206
Deferred obligations to related parties 2,754,848 2,658,110
Other current liabilities 637,493 601,441
------------ ------------
Total current liabilities 4,780,027 4,684,097
LONG-TERM DEBT, less current portion 116,041 32,369
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 1999 and 1998 3,203,763 3,203,763
Additional paid-in capital 7,458,718 7,458,718
Accumulated deficit (9,380,017) (8,739,548)
------------ ------------
Total stockholders' investment 1,282,464 1,922,933
------------ ------------
Total liabilities and stockholders' investment $ 7,151,778 $ 7,612,645
============ ============
The accompanying notes are an integral part of these consolidated
statements. The 1999 and 1998 financial information is unaudited.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FIRST QUARTER ENDED FEBRUARY 28, 1999 AND 1998
(UNAUDITED)
Three Months Ended
February 28
<S> <C> <C>
1999 1998
REVENUES: ------------ ------------
Sales $ 363,513 $ 286,750
Interest income 29 3,891
Income from affiliates:
Equity in (loss) earnings (299,998) 239,900
Consulting fees 15,000 15,000
Other 9,315 287
------------ ------------
Total revenues 87,859 545,828
COSTS AND EXPENSES:
Cost of sales 377,736 289,811
General and administration 165,809 201,355
Interest 32,652 36,506
Depreciation and amortization 51,131 62,622
Loss on investment 101,000 -
------------ ------------
Total costs and expenses 728,328 590,294
Income (loss) from continuing operations (640,469) (44,466)
PROVISION FOR INCOME TAXES: - -
------------ ------------
Income (loss) before extraordinary item (640,469) (44,466)
EXTRAORDINARY ITEM:
Reduction of income taxes from
net operating loss carryforward - -
------------ ------------
Net income (loss) $ (640,469) $ (44,466)
============= ============
EARNINGS (LOSS) PER SHARE:
Income (loss) before extraordinary item $ (0.20) $ (0.01)
Extraordinary item - -
------------- ------------
Net income (loss) per share $ (0.20) $ (0.01)
============= ============
Weighted Average Number of Shares of
Common Stock Outstanding 3,203,763 3,203,763
============ ============
The accompanying notes are an integral part of these consolidated
statements. The 1999 and 1998 financial information is unaudited.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FIRST QUARTER ENDED FEBRUARY 28, 1999 AND 1998
(UNAUDITED)
Three Months Ended
February 28
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations $ (640,469) $ (44,466)
Adjustments to reconcile net income from
continuing operations to net cash
provided by operating activities:
Depreciation and amortization 52,609 62,222
Loss (equity) in earnings of affiliates 299,998 (254,900)
Cash distribution from affiliates - 196,811
Changes in assets and liabilities:
(Increase) decrease in receivables (6,627) 3,654
Decrease (increase) in inventories 95,559 (25,160)
Decrease in other current assets 6,664 5,723
(Decrease) in trade accounts payable (7,844) (265,264)
Increase in accrued officers salaries
and directors fees 96,738 31,977
Increase in other current liabilities 36,052 65,160
------------ ------------
Total adjustments 573,149 (179,777)
Net cash (used) by operating activities (67,320) (224,243)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15,536) (25,091)
------------ ------------
Net cash (used) by investing activities (15,536) (25,091)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in long-term debt 54,656 (46,081)
------------ ------------
Net cash provided (used)
by financing activities 54,656 (46,081)
Net (decrease) in cash and cash equivalents $ (28,200) $ (295,415)
Cash and cash equivalents at the beginning
of the year $ 41,220 $ 653,906
------------ ------------
Cash and cash equivalents at the end of the quarter $ 13,020 $ 358,491
============ ============
The accompanying notes are an integral part of these consolidated
statements. The 1999 and 1998 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, 1998 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
1998, 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
First quarter ended February 28, 1999 compared
with the first quarter ended February 28, 1998
For the first quarter ended February 28, 1999 the Company had a
net loss from operations of $640,469 or $0.20 per share as
compared to a net loss from operations of $44,466 or $0.01 per
share for the same period last year.
The Company's revenues for the first quarter were $87,859 as
compared to $590,294 the same period last year. The revenues
decreased because of equity losses, which are not expect to
improve until mid-year. The sales at the Company's silica sand
operation increased primarily due to an increase in purchases by
its glass customer. Sales to this customer will be lower in the
second quarter as the Company installs equipment to lower the
sand's iron content. Upon completion of the project sales
volume should as a minimum return to 1997 levels (on a pro rata
basis). The plant improvement program is scheduled to be
completed by mid-1999.
The general and administration costs decreased from last year to
$201,355 from $165,809 due to a reduction in legal and deferred
compensation expenses. A nonrecurring expense of $101,000 was
incurred as a settlement of some obligations related to L-Bar
Products. 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, 1998 to February 28, 1999
The Company's net cash used by operating activities was $67,320
and $179,777 for the first quarter ended February 28, 1999 and
1998, respectively. The net cash used by investing activities
was $15,536 and $25,091 for the first quarter ended February 28,
1999 and 1998, respectively. Most of the cash used by investing
activities in 1998 and 1997 was for capital improvements to the
sand project. The Company increased its long term debt
$54,656 and reduced its long term debt by $46,081 for the first
quarter ended February 28, 1999 and 1998, respectively.
Working capital decreased $219,726 for the three months. The
decrease in working capital includes salaries, directors fees,
deferred compensation and certain interest charges which have
been accrued but not paid. The working capital deficit
increased as a result of the operating losses. As part of the
Company's program to conserve cash in order to operate the
Company, part of the salaries due to the officers of the
Company, all of the deferred compensation due to the deceased
chairman's spouse (ending in January 1998) and the part of the
interest due on certain loans were accrued but not paid. As of
November 30, 1998, these accruals (salaries, deferred
compensation and deferred interest) exceeded $2.7 million.
<PAGE>
The Company plans to spend approximately $550,000 in 1999 on
capital improvements to the sand plant and expects to fund this
through additional borrowing. The Company plans to continue to
accrue part of the obligations described in the above paragraph
and expects to continue to generate sufficient cash flow to
operate.
Year 2000 (Y2K).
The Comany uses a packaged accounting system, which the vendor
has represented to be Y2K compliant. However, the Company plans
to purchase and install some module upgrades later in the year.
The Company is in the process of receiving Y2K compliant
software upgrades to its payroll system. The Company in the
process of contacting its primary customers to determine if they
are Y2K compliant.
The Company's significant subsidiary also uses a packaged
accounting software system, which the developer has represented
to be Y2K compliant. Affected systems include the significant
subsidiary's management information system, certain
manufacturing equipment, certain owned equipment in the field
and other office equipment. The significant subsidiary has
implemented a Y2K task force to address all related Y2K issues
and estimates it is 90% complete of all testing and corrections
as of February 28, 1999. The significant subsidiary also
believes it will be fully compliant by May 31, 1999.
Management believes that Y2K will not have a material effect on
the Company or its significant subsidiary or its results of
operation. Because the information technology system at the
significant subsidiary was recently upgraded in the normal
course of operations, the costs of Y2K compliance are not
expected to material.
The Company and its significant subsidiary are taking all
reasonable steps to ensure Y2K compliance. However, this
ability may be dependent on other parties and the Company and
its significant subsidiary can not provide assurance that there
will not be problems.
Forward-Looking Statements.
The Company may from time to time make written or oral
"forward-looking statements", within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements
contained in this Form 10KSB and in other documents filed by the
Company with the Securities and Exchange Commission and in its
reports to stockholders, as well as elsewhere. "Forward-looking
statements" are statements such as those contained in
projections, plans, objectives, estimates, statements of future
economic performance, and assumptions related to any of the
forgoing, and may be identified by the use of forward-looking
terminology, such as "may", "expect", "anticipate", "estimate",
"goal", "continued", or other comparable terminology. By their
very nature, forward-looking statements are subject to known and
unknown risks and uncertainties relating to the Company's future
performance that may cause the actual results, performance or
achievements of the Company, or industry results, to differ
materially from those expressed or implied in such
"forward-looking statements". Any such statement is qualified
by reference to the following cautionary statements.
<PAGE>
The Company's business operates in highly competitive markets
and is subject to changes in general economic conditions,
competition, customer and market preferences, government
regulation, the impact of tax regulation, foreign exchange rate
fluctuations, the degree of market acceptance of the products,
the uncertainties of potential litigation, as well as other
risks and uncertainties detailed elsewhere herein and from time
to time in the Company's Securities and Exchange Commission
filings. This Form 10QSB contains forward looking statements,
particularly in the following sections: Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations, in some of the footnotes to the financial statements
and in Part II, item 1 Litigation. Actual results could differ
materially from those projected in the forward looking
statements as a result of known and unknown risks,
uncertainties, and other factors, including but not limited to
the plans to lower the iron content of the dried sand and the
Court approval of the Agreement to Settle litigation, market
acceptance of the Company's products and services, changes in
expected research and development requirements, and the effects
of changing economic conditions and business conditions
generally. The Company does not undertake and assumes no
obligation to update any forward-looking statement that may be
made from time to time by or on behalf of the Company.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company and L-Bar Products, Inc., its wholly owned
subsidiary, have reached an agreement to settle all litigation
with Northwest Alloys, Inc. On March 12, 1999 the Court
approved the settlement. The Trustee is proceeding to carry out
the terms of the agreement.
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>
SIGNATURE
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: April 12, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> NOV-30-1999 NOV-30-1998
<PERIOD-END> FEB-28-1999 FEB-28-1998
<CASH> 13,020 41,220
<SECURITIES> 0 0
<RECEIVABLES> 703,071 752,826
<ALLOWANCES> 46,332 46,332
<INVENTORY> 121,391 216,950
<CURRENT-ASSETS> 811,462 935,258
<PP&E> 3,794,068 3,778,532
<DEPRECIATION> (1,184,277) (1,131,668)
<TOTAL-ASSETS> 7,151,778 7,612,645
<CURRENT-LIABILITIES> 4,780,027 4,684,097
<BONDS> 0 0
0 0
0 0
<COMMON> 3,203,763 3,203,763
<OTHER-SE> (1,921,296) (1,280,827)
<TOTAL-LIABILITY-AND-EQUITY> 7,151,778 7,612,645
<SALES> 363,513 286,750
<TOTAL-REVENUES> 87,859 545,828
<CGS> 377,736 289,811
<TOTAL-COSTS> 795,676 553,788
<OTHER-EXPENSES> 101,000 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 36,562 36,506
<INCOME-PRETAX> (640,469) (44,496)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (640,469) (44,496)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (640,469) (44,496)
<EPS-PRIMARY> (0.20) (0.01)
<EPS-DILUTED> (0.20) (0.01)
</TABLE>
