U.S. Securities and Exchange Commission
Washington, D.C. 20
Form 10 - QSB
(Mark One)
[ X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from
____________________to___________________
Commission file number 0-22964
_______
Sel-Drum International, Inc.
____________________________
(Exact name of small business issuer as specified in its charter)
Colorado 84-1236134
________ __________
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
501 Amherst Street, Buffalo, New York 14207-2913
________________________________________________
(Address of principal executive offices)
905-335-2766
____________
(Issuer's telephone number)
Former name:
Former address:
(Former name, former address and former fiscal year, if changed
since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of Exchange Act during the past 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
_____ ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by court. Yes No (Not Applicable)
______ ______
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class Outstanding at June 12, 1997
_____ ____________________________
Common stock no par value 7,642,500 shares
Transitional Small Business Disclosure Format (check one):
Yes No [ X ]
__________ ______
<PAGE>
SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I: FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of
April 30, 1997 and July 31, 1996 3 - 4
Consolidated Statements of Income
for the three and nine months Ended
April 30, 1997 and April 30, 1996 5 - 6
Consolidated Statements of Cash Flows
for the nine months Ended April 30, 1997
and April 30, 1996 7
Item 2. Management's Discussion and Analysis
of Financial Conditions and Results of
Operations 8 - 10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote
of Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE>
SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
(U.S.$)
<TABLE>
ASSETS
______
<CAPTION>
CURRENT ASSETS April 30, 1997 July 31, 1996*
______________ ______________ ______________
<S> <C> <C>
Cash and Cash Equivalents $ 817,934 $ 1,181,396
Accounts receivable, net 2,317,179 1,769,211
Deferred Income Tax Benefit 9,400 9,400
Inventories 3,409,591 3,795,766
Loans receivable-
related parties 113,766 114,295
Other Current Assets 112,034 121,659
_________ _________
TOTAL CURRENT ASSETS 6,779,904 6,991,727
PROPERTY
________
Equipment 1,362,848 1,351,522
Vehicles 34,113 34,288
Furniture and Fixtures 47,848 38,134
Leasehold improvements 408,890 387,136
_________ _________
1,853,699 1,811,080
Less accumulated
Depreciation and Amortization 893,449 775,172
_________ _________
960,250 1,035,908
OTHER ASSETS
____________
Organization costs, net 8,916 10,608
Purchased and developed
technology, net 57,184 64,819
Deposits 14,402 14,475
_______ _______
80,502 89,902
_______ _______
$ 7,820,656 $ 8,117,537
========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
*Derived from the July 31, 1996 form 10-KSB
(3)
<PAGE>
SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS(CONT'D)
<TABLE> (U.S.$)
LIABILITIES AND SHAREHOLDERS' EQUITY
____________________________________
<CAPTION>
CURRENT LIABILITIES April 30, 1997 July 31, 1996*
<S> <C> <C>
Notes payable to banks $ 1,600,155 $ 2,074,144
Current portion of long-term debt 58,671 179,948
Accounts payable 1,041,748 1,167,461
Income tax payable 51,044 91,771
Other current liabilities 54,317 219,229
___________ __________
TOTAL CURRENT LIABILITIES 2,805,935 3,732,553
OTHER LIABILITIES
Long-term debt 107,508 129,465
Deferred income taxes 9,232 9,406
____________ __________
116,740 138,871
SHAREHOLDERS' EQUITY
____________________
Common stock 761,356 761,356
Preferred stock 4,800,180 4,800,180
Additional paid in capital 11,915 11,915
Cumulative foreign currency
translation adjustment -148,081 -110,067
(Accumulated deficit) -527,389 -1,217,271
_____________ __________
4,897,981 4,246,113
_____________ __________
$ 7,820,656 $8,117,537
============= ==========
</TABLE>
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
Derived from the July 31, 1996 Form 10-KSB.
(4)
<PAGE>
SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(U.S.$)
<TABLE>
<CAPTION>
QUARTER ENDED
APRIL 30
_________________________
1997 1996
__________ __________
<S> <C> <C>
Net sales $4,308,203 $4,147,202
Cost of goods sold 2,851,291 2,694,397
___________ __________
GROSS PROFIT 1,456,912 1,452,805
Selling, operating and general
and administrative expenses 1,019,153 965,544
Provision for bad debts 16,347 26,508
___________ __________
INCOME FROM OPERATIONS 421,412 460,753
Other income(expense):
Interest Income 2,067 137
Interest Expense -32,008 -46,153
Foreign currency
transaction <loss> 3,089 -16,165
___________ ___________
-26,852 -62,181
___________ ___________
INCOME BEFORE INCOME TAXES 394,560 398,572
Income Taxes:
Current 167,297 127,001
Deferred - -
___________ ___________
167,297 127,001
___________ ___________
NET INCOME $ 227,263 $ 271,571
=========== ===========
Number of common shares outstanding 7,642,500 7,622,000
Net income per common share $ .03 $ .04
========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
(5)
<PAGE>
SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(U.S.$)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30
____________________
1997 1996
____ ____
<S> <C> <C>
Net sales $12,244,237 $10,964,316
Cost of goods sold 8,048,582 7,213,906
___________ ___________
GROSS PROFIT 4,195,655 3,750,410
Selling, operating and general
and administrative expenses 2,904,558 2,676,986
Provision for bad debts 44,557 52,704
___________ ___________
INCOME FROM OPERATIONS 1,246,540 1,020,720
Other income(expense):
Interest Income 13,480 2,601
Interest Expense -101,253 -133,587
Foreign currency
transaction gain <loss> 21,185 2,847
Disposal Fixed Asset Gain <Loss> 1,154 -
__________ ___________
-65,434 -128,139
__________ ___________
INCOME BEFORE INCOME TAXES 1,181,106 892,581
Income Taxes:
Current 491,224 292,745
Deferred - -
__________ ___________
491,224 292,745
__________ ___________
NET INCOME $ 689,882 $ 599,836
========== ===========
Number of common shares outstanding 7,642,500 7,622,000
Net income per common share $ .09 $ .08
====== ======
</TABLE>
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
(6)
<PAGE>
SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S.$)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30
________________________
1997 1996
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES
_________________________________
Net Income $ 689,882 $ 599,836
Adjustments to reconcile net income to
net cash provided from (used for) operating
activities:
Provision for bad debts 44,557 52,704
Depreciation and amortization 144,335 142,138
Deferred income taxes <credit> - -
Gain on Disposal of Property -1,154 -
Changes in certain assets and
liabilities affecting operations:
Accounts receivable -592,525 -336,111
Inventories 386,175 -305,997
Other current assets 9,625 -19,979
Deposits 73 220
Accounts payable -125,713 -209,062
Income taxes payable -40,727 -47,600
Other current liabilities -164,912 586,017
_________ __________
NET CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES 349,616 462,166
CASH FLOWS - INVESTING ACTIVITIES
Purchases of property -59,350 -91,386
_________ _________
NET CASH (USED FOR)
INVESTING ACTIVITIES -59,350 -91,386
CASH FLOWS - FINANCING ACTIVITIES
Bank overdraft - -17,182
Loans receivable - related parties 529 -2,927
Short-term borrowings net -473,989 334,304
Proceeds from Disposal of Assets 2,804 -
Repayments on long-term debt -143,234 -45,099
_________ ________
NET CASH PROVIDED FROM FINANCING
ACTIVITIES -613,890 269,096
Effect of exchange rate changes on cash -39,838 4,272
_________ ________
NET INCREASE IN CASH -363,462 644,148
Cash and Cash Equivalents at
beginning of period 1,181,396 166,005
__________ ________
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 817,934 $ 810,153
========== ==========
</TABLE>
(7)
<PAGE>
SEL-DRUM INTERNATIONAL INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
OVERVIEW
________
SEL-DRUM INTERNATIONAL INC., ("SEL-DRUM" or the "COMPANY")
is the successor corporation to Dakota equities, Ltd. which
acquired all of the outstanding common shares of SEL-DRUM IMAGING
CORPORATION, a privately held Canadian Corporation. The
Company's primary business is the distribution of high mortality
copier replacement parts, toners, and photoreceptors ("Drums"),
including the re-manufacturing of Drums. On August 1, 1995 the
Company added re-manufactured facsimile and printer cartridges to
its product offering. The company markets in the United States
and Canada through a direct network of sales agents and
telemarketers. In the Province of Quebec, Canada, the Company
has an exclusive distributor. Outside of North America the
Company is represented by several distributors and their sales
account for less than 5% of the total revenues.
On November 1, 1996, the company merged its subsidiary
Micron Imaging Corporation into Sel-Drum Corporation. Over 50%
of Micron production was purchased by Sel-Drum corporation, and
the merger of the subsidiaries' consolidated administration and
finance in Burlington, Ontario, Canada.
The Company markets and inventories a line of 1800 high
mortality replacements parts, Drums, toner, facsimile and printer
cartridges. The replacement parts are principally manufactured
in Japan and Germany, many exclusively to the Company
specifications. Facsimile and printer cartridges are
manufactured exclusively for the company for distribution to the
copier dealer market in North America, by MKG Mississauga,
Ontario, Canada.
The Company operated two wholly-owned subsidiaries, SEL-DRUM
CORPORATION (U.S.A.) INC., and SEL-DRUM CORPORATION. SEL-DRUM
CORPORATION (U.S.A.) INC. and SEL-DRUM CORPORATION employ a
number of sales agents and telemarketers who contact directly the
copier machine dealers throughout North America. There are
approximately 12,000 such dealers marketing various brands of
copier products. The Company estimates that the potential
marketplace for high mortality replacement parts, drums and
toner, not controlled by original equipment manufacturers
(OEMs"), to be approximately $675 million in North America.
On March 7, 1997 the Company and certain principal
shareholders terminated discussions with JRCS Corp. regarding the
sale of substantially all of the outstanding capital stock of the
company.
RESULTS OF OPERATIONS
_____________________
The Company's results of operations are affected by numerous
factors such as general economic conditions, competition and
inventory costs. The largest component of the Company's cost of
sales is inventory cost, which may vary slightly from period to
period based upon timing of purchases which indirectly affect the
Company's inventory costs.
The following table sets forth for each of the periods
presented, certain income statement data for the Company
expressed as a percentage of net sales.
<PAGE>
(8)
SEL-DRUM INTERNATIONAL INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Nine Months
Statement of Ended Ended
Operations Data April 30, April 30 April 30, April 30,
1997 1996 1997 1996
_______________ ________ ________ _________ _________
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
As a Percentage of Net Sales:
Cost of Goods Sold 66.2% 64.9% 65.7% 65.7%
________ ________ _________ _________
Gross Profit 33.8% 35.1% 34.3% 34.3%
Selling, General
and Administrative
Expenses 23.8% 23.4% 23.9% 24.6%
Provision for
bad Debt .3% .6% .3% .4%
________ _______ _________ _________
Income from
Operations 9.7% 11.1% 10.1% 9.3%
Other Income (Expense) -.6% -1.5% -.5% -1.2%
Income before Taxes 9.1% 9.6% 9.6% 8.1%
_____ _____ _____ _____
Net Income 5.2% 6.5% 5.6% 5.4%
</TABLE>
Net sales for the three months ended April 30, 1997 were
$4,308,203 as compared with $4,147,202 for the three months ended
April 30, 1996, an increase of 3.8%. For the nine months ended
April 30, 1997, net sales were $12,244,237, as compared with
$10,964,316 for the nine months ended April 30, 1996, an increase
of 11.6%. The increase in net sales for the nine months ended
April 30, 1997 is principally the result of steady improvement
in the copier and copier component markets and an intensified
marketing effort within the company and its distribution
channels.
Gross profit margin for the three months ending April 30,
1997 was 33.8%, as compared to 35.1% for the same period last
year. For the nine months ended April 30, 1997, gross profit
margin was 34.3% as compared to 34.3% for the nine months ended
April 30, 1996. In absolute dollars, gross profit increased from
$1,452,805 for the three months ended April 30, 1996 to
$1,456,912 for the three months ended April 30, 1997. For the
nine months ended April 30, 1997, absolute gross profit dollars
increased to $4,195,655 from $3,750,410. The increase in
absolute gross profit dollars for the three and nine month
periods, respectively, resulted primarily from net sales
increases.
Selling, general, and administrative expenses for the three
months ended April 30, 1997 increased 5.5% from the prior
comparable period. This increase resulted primarily from
professional and other fees associated with the recently
terminated negotiations with JRCS described earlier herein. For
the nine months ended April 30, 1997, selling, general and
administrative expenses increased in absolute dollars by
$227,572, or 8.5%. The increase in selling, general and
administrative expenses for the six months is also attributable
to professional fees and other expenses associated with the
recently terminated negotiation with JRCS and additional sales
cost associated with increased sales volumes.
<PAGE>
(9)
SEL-DRUM INTERNATIONAL INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
The company's principal capital requirements are to fund its
working capital needs and material inventory requirements and to
fund the improvement of facilities, machinery and equipment.
Historically the Company has used income generated by operations
as well as bank financing to fund these capital needs.
Net cash provided by operating activities primarily
represents net income plus changes in working capital positions.
Net cash provided by operating activities for the nine months
ended April 30, 1997 was $349,616.
Net cash used for investing activities represents purchases
of property in connection with the start up of a facsimile and
printer cartridge production operation at the company's Kelowna,
British Columbia facility.
The Company currently has a revolving demand loan
arrangement with the National Bank of Canada in the amount of
$3,700,000 (CDN). These borrowings generally assist the Company
with funding of accounts receivable and inventory purchases. As
of April 30, 1997 outstanding borrowings of $1,600,155 (U.S.)
existed under this arrangement.
Cash flow from operations coupled with cash flow generated
by bank financing has provided the Company with the cash
necessary to meet its cash requirements. For the foreseeable
future, the Company does not anticipate any significant cash
outlays other than those consistent with past practices.
<PAGE>
(10)
SEL-DRUM INTERNATIONAL INC. AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
______ _________________
ITEM 6 EXHIBITS AND REPORTS ON FORM 8K
______ _______________________________
(a)Exhibits
(b)Reports on Form 8-K
- None
<PAGE>
(11)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SEL-DRUM INTERNATIONAL, INC.
(Registrant)
Date: June 13, 1997
_________________________
/s/Brian Turnbull
_______________________________
Brian Turnbull, President, C.E.O.
/s/ John Hall
_______________________________
John Hall, Financial Director
<PAGE>
(12)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> APR-30-1997
<CASH> 817934
<SECURITIES> 0
<RECEIVABLES> 2317179
<ALLOWANCES> 0
<INVENTORY> 3409591
<CURRENT-ASSETS> 225800
<PP&E> 1853699
<DEPRECIATION> 893449
<TOTAL-ASSETS> 7820656
<CURRENT-LIABILITIES> 2805935
<BONDS> 0
0
4800180
<COMMON> 761356
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7820656
<SALES> 12244237
<TOTAL-REVENUES> 12244237
<CGS> 8048582
<TOTAL-COSTS> 2904558
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44557
<INTEREST-EXPENSE> 101253
<INCOME-PRETAX> 1181106
<INCOME-TAX> 491224
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 689882
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
</TABLE>
