U.S. Securities and Exchange Commission
Washington, D.C. 20549
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 January 31, 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 the 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 March 14 , 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
Unaudited Consolidated Balance Sheet
as of January 31, 1997 and July 31, 1996 3 - 4
Unaudited Consolidated Statements of
Income for the Six Months Ended
January 31, 1997 and January 31, 1996 5
Unaudited Consolidated Statements of
Income for the Quarters Ended
January 31, 1997 and January 31, 1996 6
Unaudited Consolidated Statements of
Cash Flows for the Six Months Ended
January 31, 1997 and 1996 7
Item 2. Management's Discussion and
Analysis of Financial Condition
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>
<CAPTION>
ASSETS
______
CURRENT ASSETS January 31, 1997 July 31, 1996*
________________ _____________
<S> <C> <C>
Cash and Cash Equivalents $ 832,575 $ 1,181,396
Accounts receivable, net 2,172,457 1,769,211
Deferred Income Tax Benefit 9,400 9,400
Inventories 3,445,629 3,795,766
Loans receivable-
related parties 121,154 114,295
Other Current Assets 97,974 121,659
____________ _________
TOTAL CURRENT ASSETS 6,679,189 6,991,727
PROPERTY
________
Equipment 1,401,466 1,351,522
Vehicles 34,463 34,288
Furniture and Fixtures 44,373 38,134
Leasehold improvements 399,236 387,136
____________ _________
1,879,538 1,811,080
Less accumulated
Depreciation and Amortization 877,040 775,172
____________ _________
1,002,498 1,035,908
OTHER ASSETS
____________
Organization costs, net 9,764 10,608
Purchased and developed
technology, net 61,569 64,819
Deposits 14,402 14,475
____________ _________
85,735 89,902
____________ _________
$ 7,767,422 $ 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
<PAGE>
SEL-DRUM INTERNATIONAL, INC. and SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS(CONT'D)
(U.S.$)
<TABLE>
<CAPTION>
LIABILITIES AND
SHAREHOLDERS'
EQUITY
________________
CURRENT LIABILITIES January 31, 1997 July 31, 1996*
___________________ ________________ _____________
<S> <C> <C>
Notes payable to banks $ 1,676,007 $ 2,074,144
Current portion of long-term debt 60,887 179,948
Accounts payable 1,065,925 1,167,461
Income tax payable 29,974 91,771
Other current liabilities 53,317 219,229
____________ ___________
TOTAL CURRENT LIABILITIES 2,886,110 3,732,553
OTHER LIABILITIES
_________________
Long-term debt 126,791 129,465
Deferred income taxes 9,580 9,406
____________ ___________
136,371 138,871
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 <73,858> <110,067>
<Accumulated deficit> <754,652> <1,217,271>
____________ ___________
4,744,941 4,246,113
____________ ___________
$ 7,767,422 $ 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.
<PAGE>
SEL-DRUM INTERNATIONAL, INC. and SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(U.S.$)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
January 31
1997 1996
______ ______
<S> <C> <C>
Net sales $7,936,034 $6,817,114
Cost of goods sold 5,197,291 4,519,509
__________ __________
GROSS PROFIT 2,738,743 2,297,605
Selling, operating and general
and administrative expenses 1,885,405 1,711,442
Provision for bad debts 28,210 26,196
__________ _________
INCOME FROM OPERATIONS 825,128 559,967
Other income(expense):
Interest Income 11,413 2,464
Interest Expense <69,245> <87,434>
Foreign currency
transaction gain <loss> 18,096 19,012
Disposal Fixed Assets gain <loss> 1,154 -
__________ _________
<38,582> <65,958>
__________ _________
INCOME BEFORE INCOME TAXES 786,546 494,009
Income Taxes:
Current 323,927 165,744
Deferred - -
__________ _________
323,927 165,744
__________ _________
NET INCOME $ 462,619 $ 328,265
========== =========
Number of common shares outstanding 7,642,500 7,622,000
Net income per common share $ .06 $ .04
========== =========
</TABLE>
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
<PAGE>
SEL-DRUM INTERNATIONAL, INC.
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED STATEMENT OF INCOME
(U.S.$)
<TABLE>
<CAPTION>
QUARTER ENDED
JANUARY 31
1997 1996
_____ _____
<S> <C> <C>
Net sales $3,998,798 $3,489,420
Cost of goods sold 2,648,036 2,288,290
__________ __________
GROSS PROFIT 1,350,762 1,201,130
Selling, operating and general
and administrative expenses 962,577 853,118
Provision for bad debts 14,513 15,221
__________ ___________
INCOME FROM OPERATIONS 373,672 332,791
Other income(expense):
Interest Income 5,868 2,345
Interest Expense <31,570> <46,557>
Foreign currency
transaction gain <loss> 7,663 <1,680>
Fixed Asset Disposal
gain <loss> - -
__________ __________
<18,039> <45,892>
__________ __________
INCOME BEFORE INCOME TAXES 355,633 286,899
Income Taxes:
Current 150,822 103,052
Deferred - -
__________ __________
150,822 103,052
__________ __________
NET INCOME $ 204,811 $ 183,847
========== ==========
Number of common shares outstanding 7,642,500 7,622,000
Net income per common share $ .03 $ .02
========= ==========
</TABLE>
The accompanying notes are an integral part of the unaudited
consolidated financial statements.
<PAGE>
SEL-DRUM INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S.$)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 31
1997 1996
____ ____
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES
_________________________________
Net Income $ 462,619 $ 328,265
Adjustments to reconcile
net income to net cash
provided from <used for>
operating activities:
Provision for bad debts 28,210 26,196
Depreciation and amortization 95,557 91,938
Deferred income taxes - -
Gain on Disposal of Property <1,154> -
Changes in certain assets and
liabilities affecting operations:
Accounts receivable <431,456> <124,435>
Inventories 359,829 29,524
Other current assets 23,685 <48,251>
Deposits 73 <217>
Accounts payable <101,536> <514,531>
Income taxes payable <61,797> <74,462>
Other current liabilities <165,912> 319,375
__________ ________
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 208,118 33,402
CASH FLOWS - INVESTING ACTIVITIES
_________________________________
Purchases of property <37,134> <50,296>
___________ ________
NET CASH <USED FOR> INVESTING ACTIVITIES <37,134> <50,296>
CASH FLOWS - FINANCING ACTIVITIES
_________________________________
Bank overdraft - 146,983
Loans receivable - related parties <6,859> 2,897
Short-term borrowings net <398,137> 621,846
Repayments on long-term debt <121,735> <29,750>
Proceeds from Disposal of Assets 2,804 -
__________ _________
NET CASH <USED FOR> PROVIDED
FROM FINANCING ACTIVITIES <523,927> 741,976
Effect of exchange rate changes on cash 4,122 <246>
__________ _________
NET <DECREASE> INCREASE IN CASH <348,821> 724,836
Cash and Cash Equivalents at
beginning of period 1,181,396 166,005
__________ ________
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 832,575 $ 890,841
========== ========
</TABLE>
<PAGE>
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. A significant number of the drums sold by the
Company are produced at its facility in Kelowna, British
Columbia, Canada. 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 operates two wholly-owned subsidiaries, SEL-DRUM
CORP. (U.S.A.) INC., and SEL-DRUM CORPORATION. SEL-DRUM CORP.
(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 February 28, 1997 discussions with JRCS Corp. were
terminated regarding the sale of substantially all of the
outstanding capital stock of the Company. Management believes
that during the first two fiscal quarters a significant amount of
management's time and attention had been devoted toward
negotiating the terms of the proposed transaction.
<PAGE>
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 and currency fluctuations.
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.
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
____________ __________
Statement of
Operations Data Jan. 31 Jan. 31 Jan. 31 Jan. 31
_______________ 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 66.3 65.6 65.5 66.3
_____ _____ _____ _____
Gross Profit 33.7 34.4 34.5 33.7
Selling, General and
Administrative Expenses 24.0 24.4 23.8 25.1
Provision for Bad Debt .4 .4 .3 .4
_____ _____ _____ _____
Income from Operations 9.3 9.6 10.4 8.2
Other Income (Expense) (.4) (1.3) (.5) (1.0)
Income Before Taxes 8.9 8.3 9.9 7.2
_____ _____ _____ _____
Net Income 5.1 5.3 5.8 4.8
===== ===== ===== =====
</TABLE>
Net sales for the three months ended January 31, 1997 were
$3,998,798 as compared with $3,489,420 for the three months ended
January 31, 1996, an increase of 14.6%. For the six months ended
January 31, 1997, net sales were $7,936,034, as compared with
$6,817,114 for the six months ended January 31, 1996, an increase
of 16.4%. The increase in net sales for the six months ended
January 31, 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 January 31,
1997 was 33.7%, as compared to 34.4% for the same period last
year. For the six months ended January 31, 1997, gross profit
margin was 34.5% as compared to 33.7% for the six months ended
January 31, 1996. In absolute dollars, gross profit increased
from $1,201,130 for the three months ended January 31, 1996 to
$1,350,762 for the three months ended January 31, 1997. For the
six months ended January 31,
<PAGE>
1997, absolute gross profit dollars increased to $2,738,743 from
$2,297,605. The increase in absolute gross profit dollars of
$149,632 and $441,138 for the three and six month periods,
respectively, resulted primarily from net sales increases.
Selling, general, and administrative expenses for the three
months ended January 31, 1997 increased 13% from the prior
comparable period. This increase resulted primarily from the
hiring of additional sales personnel and professional and other
fees associated with the recently terminated negotiations with
JRCS described earlier herein. As a percentage of net sales,
selling, general and administrative expenses decreased as a
result of increased sales volume. For the six months ended
January 31, 1997, selling, general and administrative expenses
increased by $173,963, or 10%. The increase in selling, general
and administrative expenses for the six months is also
attributable to the hiring of additional sales personnel and
professional fees and other expenses associated with the recently
terminated negotiation with JRCS.
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 from operating activities primarily
represents net income plus changes in working capital positions.
Net cash provided from operating activities for the six months
ended January 31, 1997 was $208,118.
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
approximately $2,740,000 (U.S.). These borrowings generally
assist the Company with funding of accounts receivable and
inventory purchases. As of January 31, 1997 outstanding
borrowings of $1,676,007 (U.S.) existed under this arrangement.
The foregoing amounts may change as a result of currency
fluctuations.
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
<PAGE>
PART II - OTHER INFORMATION
___________________________
Item 1.Legal Proceedings.
________________________
During the quarter ended January 31, 1997, the Company
was served with a lawsuit by a former sales agent. Management
believes that the claim is without merit and intends to
vigorously defend the matter.
Item 6. Exhibits and Reports on Form 8-K.
__________________________________________
(a) Exhibits.
________
(b) Reports on Form 8-K.
___________________
Company's Form 8-K filed March 14, 1997.
<PAGE>
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: March 14, 1997
/s/ Brian Turnbull
_________________________________
Brian Turnbull, President, C.E.O.
/s/ John Hall
_______________________________
John Hall, Financial Director
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 832575
<SECURITIES> 0
<RECEIVABLES> 2172457
<ALLOWANCES> 0
<INVENTORY> 3445629
<CURRENT-ASSETS> 97974
<PP&E> 1879538
<DEPRECIATION> 877040
<TOTAL-ASSETS> 7767422
<CURRENT-LIABILITIES> 2886110
<BONDS> 0
0
4800180
<COMMON> 761356
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7767422
<SALES> 7936034
<TOTAL-REVENUES> 0
<CGS> 5197291
<TOTAL-COSTS> 1885405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 28210
<INTEREST-EXPENSE> 69245
<INCOME-PRETAX> 786546
<INCOME-TAX> 323927
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462619
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
