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, 2000
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 Id. 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 12, 2000 -
2,803,763 shares $1.00 Par Value
INDEX
Page No.
PART I. Financial Information
Consolidated Balance Sheets
August 31, 2000 and November 30, 1999 1
Consolidated Statements of Income
Third quarter ended August 31, 2000 and 1999 2
Consolidated Statements of Cash Flows
Third quarter ended August 31, 2000 and 1999 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis or
Plan of Operation 5 - 7
PART II. Other Information 8
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2000 AND NOVEMBER 30, 1999
ASSETS 2000 1999
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 8,116 $ 17,689
Receivables, less allowance for
doubtful accounts -0- 188,461 182,652
Receivables from affiliates and
related parties 525,858 481,210
Inventories 192,382 395,153
Prepaid expenses and deposits 23,739 17,745
----------- -----------
Total current assets 938,556 1,094,448
PROPERTY, PLANT AND EQUIPMENT, at cost 3,091,909 3,160,308
Less accumulated depreciation and
depletion (1,392,801) (1,336,409)
----------- -----------
1,699,108 1,823,899
INVESTMENT IN UNCONSOLIDATED AFFILIATES 2,607,416 2,884,323
----------- -----------
Total assets $ 5,245,080 $ 5,802,670
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term debt related party $ 175,000 $ 175,000
Current portion of long-term debt 945,789 993,940
Trade accounts payable 196,152 319,450
Deferred obligations to related parties 4,126,167 3,707,255
Other current liabilities 139,314 249,068
----------- -----------
Total current liabilities 5,582,422 5,444,713
LONG-TERM DEBT, less current portion 398,152 493,517
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value.
Authorized 6,000,000 shares, issued
and outstanding 2,803,763 shares
in 2000 and 1999 2,803,763 2,803,763
Additional paid-in capital 5,871,218 5,871,218
Accumulated deficit (9,410,474) (8,810,540)
----------- ----------
Total stockholders' investment (735,493) (135,559)
----------- ----------
Total liabilities and stockholders'
Investment $ 5,245,081 $5,802,670
The accompanying notes are an integral part of these consolidated statements.
The 2000 and 1999 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRD QUARTER AND NINE MONTHS ENDED AUG 31,2000 AND 1999
Third Quarter Ended Nine Months Ended
AUGUST 31 AUGUST 31
2000 1999 2000 1999
----------- ----------- ----------- -----------
REVENUES & OTHER ITEMS:
Sales $ 584,884 $ 320,440 $ 1,635,733 $ 977,324
Interest income - 5,162 188 5,966
Gain (loss) on sale
of equipment - 3,465 110,232 3,465
Income (loss) from affiliates:
Equity in
earnings (196,866) (248,112) (265,364) (818,174)
Consulting fees - 15,000 7,500 45,000
Other income 5,961 11,912 5,961 21,227
----------- ----------- ----------- -----------
Total revenues 393,979 107,867 1,494,250 234,808
EXPENSES & OTHER ITEMS:
Cost of sales 456,136 245,221 1,387,412 928,264
General and
administration 181,784 204,071 523,842 532,728
Interest 66,772 76,565 193,684 141,385
Depreciation
and amortization 63,982 52,421 193,428 153,833
(Gain) loss on sale
of property (244,653) - (244,653) 918,110
---------- ----------- ----------- -----------
Total costs
and expenses 524,021 578,278 2,053,713 2,674,320
Pretax income (loss) from continuing
operations (130,042) (470,411) (559,463) (2,439,512)
Provision for income
taxes - - - -
----------- ----------- ----------- -----------
Net income (loss) from continuing
operations $ (130,042)$ (470,411) $ (559,463)$(2,439,512)
DISCONTINUED OPERATIONS:
Reduction in reserve for estimated
losses - - - 973,246
----------- ----------- ----------- -----------
Net income
(loss) $ (130,042)$ (470,411)$ (559,463)$(1,466,266)
EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing
operations (0.05) (0.15) (0.20) (0.80)
Income (loss) from discontinued
operations - - - 0.32
----------- ----------- ----------- -----------
Net income (loss)
per share $ (0.05)$ (0.15)$ (0.20)$ (0.48)
Weighted Average Number of Shares of Common Stock
Outstanding 2,787,096 3,035,270 2,787,096 3,035,270
The accompanying notes are an integral part of these consolidated statements.
The 2000 and 1999 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED AUGUST 31, 2000 AND 1999
Nine Months Ended
August 31
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations $ (559,463) (1,466,266)
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 193,428 153,833
Equity in loss of affiliates 265,364 818,174
Cash distribution from affiliates - 6,316
(Gain) loss from sale of property - 817,110
(Gain) on sale of equipment (110,232) -
Decrease in reserve for losses from
discontinued operations - (973,246)
Changes in assets and liabilities:
(Increase) in receivables (50,457) (300,628)
Decrease (increase) in inventories 202,771 (23,911)
(Increase) in other current assets (5,995) (7,229)
(Decrease) in trade accounts payable (123,298) (16,087)
Increase in accrued officer salaries 418,912 294,163
(Decrease) increase in other
current liabilities (109,754) 232,453
----------- -----------
Total adjustments 680,739 1,000,948
----------- -----------
Net cash provided (used) by
operating activities 121,276 (465,318)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property - 600,000
Proceeds from sale of equipment 128,214 -
Capital expenditures (115,547) (632,164)
----------- -----------
Net cash provided (used) by
investing activities 12,667 (32,164)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term debt (48,151) 31,746
(Decrease) increase in long-term debt (95,365) 430,797
----------- -----------
Net cash (used) provided by
financing activities (143,516) 462,543
Net (decrease) in cash and cash
equivalents $ (9,573) $ (34,939)
Cash and cash equivalents at the beginning
of the year 17,689 41,220
----------- -----------
Cash and cash equivalents at the end
of the year $ 8,116 $ 6,281
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest$ 65,735 $ 21,204
The accompanying notes are an integral part of these consolidated statements.
The 2000 and 1999 financial information is unaudited.
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying statements, which should be read in conjunction with the
Consolidated Financial Statements included in the November 30, 1999 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 1999,
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Third quarter ended August 31, 2000 compared
to the third quarter ended August 31, 1999
For the third quarter ended August 31, 2000 the Company had a net loss
from operations of $130,042 or $0.05 per share as compared to a net loss of
$470,411 or $0.15 per share for the same period last year.
The Company's revenues for the third quarter were $393,979 as compared to
$107,867 for the same period last year. The revenues for the quarter increased
because of an increase in sales and a reduction in equity losses from an
affiliate. The sales at the Company's silica sand operation increased as its
glass customer increased it usage of the Company's low iron sand product
The general and administration costs decreased from $204,071 to $181,784.
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. Included in
expenses was nonrecurring gain of $244,653 from the reimbursement of
administrative expenses related to L-Bar Products, Inc.
Nine months ended August 31, 2000 compared
to the nine months ended August 31, 1999
For the nine months ended August 31, 2000 the Company had a net loss from
operations of $559,463 or $0.20 per share as compared to a net loss of
$1,466,266 or $0.48 per share for the same period last year. Included in the
results for the nine months ended August 31, 1999 were nonrecurring losses of
$817,110 and $101,000 from the sale of property and settlement of certain
obligations related to L-Bar Products, respectively, and a nonrecurring gain of
$973,246 from the reduction in reserves for estimated losses related to
discontinued operations at L-Bar Products. . The results for 2000 also include
a nonrecurring gain of $110,232 from the sale of surplus equipment.
The Company's revenues for the six months were $1,494,250 as compared to
$234,808 for the same period last year. The revenues for the nine months
increased because of a reduction in equity losses from an affiliate and an
increase in sales at the Company's silica sand operation. The results for 2000
also include a nonrecurring gain of $110,232 from the sale of surplus equipment.
The general and administration costs decreased slightly from $532,728 to
$523,842. 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. Included in
expenses was nonrecurring gain of $244,653 from the reimbursement of
administrative expenses related to L-Bar Products, Inc.
Liquidity and Capital Resources
Period from December 1, 1999 to August 31, 2000
The Company's net cash provided (used) by operating activities was
$121,276 and $(465,318) for the third quarter ended August 31, 2000 and August
31, 1999, respectively. The net cash provided (used) by investing activities
was $12,667 and $(32,164) for the nine months ended August 31, 2000 and 1999,
respectively. The cash provided by investing activities in 2000 was from the
sale of surplus equipment, and in 1999, it was from the sale of a property.
The capital expenditures were for capital improvements to the sand project.
The Company (decreased) increased its debt by $(143,516) and $462,543 for
the nine months ended August 31, 2000 and 1999, respectively. The Company's
cash and cash equivalents decreased by $9,573 and $34,939 for the nine
months ended August 31, 2000 and 1999, respectively.
The Company had working capital deficits of approximately $4.64 million
and $4.35 million for the nine months ended August 31, 2000 and the year ended
November 30, 1999, respectively. 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 and the part of the interest due on certain loans were accrued but not
paid for the nine months ended August 31, 2000 and 1999, respectively. As of
August 31, 2000, these accruals (salaries, deferred compensation and deferred
interest) exceeded $3.0 million.
For the current year, the Company plans to continue to accrue part of the
obligations described in the paragraph and expects to continue to generate
sufficient cash flow to operate.
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 10QSB 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.
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 section: Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
and in some of the footnotes to the financial statements. 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 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
Not Applicable
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
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 12, 2000
