<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended April 30, 1996
Commission File Number: 0-22990
________________________________________________
MAGNUM RESOURCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 87-0368628
(State of incorporation) (I.R.S. Employer
Identification No.)
2850 METRO DRIVE SUITE 509
Bloomington, MN 55425
(612) 854-1625
(Address, including zip code, and telephone number including area code,
of Issuer's executive offices)
_____________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
_____________________________________________________________
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK; 10% CONVERTIBLE PREFERRED STOCK; WARRANTS TO PURCHASE COMMON STOCK
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 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___
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of May 1, 1996 -
10,252,337.
Transitional Small Business Disclosure Format (Alternative 2):
Yes __X__ No___
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MAGNUM RESOURCES, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
- ----------------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion of Plan of Operation
For Transitional Small Business Issuer 7-9
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Share Holders 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
</TABLE>
<PAGE> 3
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. - Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
April 30, July 31,
ASSETS 1996 1995
- ------ ------------ -----------
<S> <C> <C>
Current assets:
Cash $ 23,149 $ 69,203
Accounts receivable 543,854 455,989
Inventories 1,425,847 1,556,674
Prepaid expenses 101,745 58,997
--------- ---------
Total current assets 2,094,595 2,140,863
Property, plant & equipment, net 1,434,268 1,686,300
Other assets 38,731 41,298
--------- ---------
Total assets $ 3,567,594 $ 3,868,461
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Current liabilities:
Current maturities of
long-term obligations $ 298,251 $ 210,110
Accounts payable 467,625 812,406
Accrued liabilities 515,173 499,507
--------- ---------
Total current liabilities 1,281,049 1,522,023
Long-term obligations 123,292 227,704
Deferred income taxes 112,000 112,000
--------- ---------
TOTAL LIABILITIES 1,516,341 1,861,727
Stockholders' Equity:
Preferred stock, par value $.01 per
share; 5,000,000 shares authorized,
no shares issued or outstanding. -0- -0-
Common stock, par value $.01 per
share, 50,000,000 shares authorized;
10,252,337 shares issued and
outstanding at April 30, 1996
and July 31, 1995. 102,523 102,523
Additional paid in capital 7,830,602 7,830,602
Accumulated deficit (5,881,872) (5,926,391)
--------- ---------
Total stockholders' equity 2,051,253 2,006,734
--------- ---------
TOTAL LIABILITIES & EQUITY $ 3,567,594 $ 3,868,461
========= =========
</TABLE>
(See Accompanying Notes to Financial Statements)
3
<PAGE> 4
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,796,829 $ 1,902,672 $ 5,061,777 $ 4,764,463
Cost of goods sold 1,333,344 1,553,615 3,892,966 4,311,440
--------- --------- --------- ---------
Gross profit 463,485 349,057 1,168,811 453,023
OPERATING EXPENSES:
Selling, general
& administration 362,034 296,111 982,624 890,171
Research & development
and engineering 37,989 39,643 110,247 127,353
--------- --------- --------- ---------
Operating profit (loss) 63,462 13,303 75,940 (564,501)
OTHER INCOME (EXPENSE):
Interest income
(expense), net (14,182) (9,102) (31,138) (19,004)
Other (3,140) 15,018 (283) 21,906
--------- --------- --------- ---------
Earnings (loss) before
income taxes 46,140 19,219 44,519 (561,599)
Income Taxes -0- -0- -0- -0-
--------- --------- --------- ---------
NET EARNINGS (LOSS) $ 46,140 $ 19,219 $ 44,519 $ (561,599)
========= ========= ========= =========
Net earnings (loss)
per share $0.00 $0.00 $0.00 $(0.06)
========= ========= ========= =========
Weighted average number
of common shares
outstanding 10,252,337 10,279,003 10,252,337 9,964,236
========== ========== ========== =========
</TABLE>
(See Accompanying Notes to Financial Statements)
4
<PAGE> 5
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended April 30,
1996 1995
------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 44,519 $(561,599)
Adjustments to reconcile net earnings
(loss) to net cash from operations:
Depreciation & amortization 262,710 301,668
Loss on assets -0- (2,902)
Changes in assets and liabilities:
Accounts receivable (87,865) 226,174
Inventories 130,827 593,322
Prepaid expenses (42,748) 16,739
Accrued liabilities 15,666 (117,592)
Accounts payable (344,781) (446,001)
-------- --------
Net cash provided by (used in) operations (21,672) 9,809
Cash flows from investing activities:
Purchase property, plant & equipment (10,678) 271,857
Other assets 2,567 1,367
-------- --------
Net cash provided by
investing activities (8,111) 273,224
Cash flows from financing activities:
Payments on financing activities -0- (63,750)
Payments on long-term obligations (16,271) (196,023)
Net cash used in -------- --------
investing activities (16,271) (259,773)
NET INCREASE (DECREASE) IN CASH (46,054) 23,260
Cash at beginning of period 69,203 600
Cash at end of period $ 23,149 $ 23,860
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest 16,956 22,036
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING:
Common stock for long-term Debt -0- 63,750
Common stock for preferred stock -0- (5,819)
Issuance of long-term debt for
accounts payable balance due 104,281 -0-
</TABLE>
(See Accompanying Notes to Financial Statements)
5
<PAGE> 6
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A BASIS OF PRESENTATION
The unaudited consolidated financial statements include the accounts of Magnum
Resources, Inc. ("MRI") and its wholly-owned subsidiaries, Hydra-Mac
International, Inc. ("HMI"), D&E Machining, Inc. ("DEMCO"), Power Equipment
Company ("PEC") and, until July 1995, Hydra-Mac, Inc., collectively referred to
as the "Company". These statements and related notes have been prepared
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in the financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations. The accompanying consolidated financial statements and related
notes should be read in conjunction with the audited financial statements of
the company, and notes thereto, for the fiscal year ended July 31, 1995. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The following information reflects, in the opinion of
management, all adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of the interim period results.
NOTE B REALIZATION OF ASSETS
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate on-going
continuation of the Company. The Company had earnings of $46,140 during the
three months ended April 30, 1996, and earnings of $44,519 during the nine
months ended April 1, 1996. The continued success of the Company is ultimately
dependent upon the continued improvement of future operations, management has
taken certain steps in an attempt to improve the financial condition of the
Company by improving the Company's operating profits and by increasing the
Company's working capital. If the Company is successful in its efforts to
increase sales and improve gross margins, of which there can be no assurance,
the Company should be able to generate a positive cash flow from operations.
Management's plans to increase sales and improve gross margins are set forth in
the accompanying Management Discussion of the Plan of Operation of this
document.
6
<PAGE> 7
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION OF PLAN OF OPERATION FOR TRANSITIONAL SMALL
BUSINESS ISSUER (ALTERNATIVE 2)
PLAN OF OPERATION
Management is continuing to implement a number of steps in an attempt to
increase earnings and to improve the cash flow of the Company. First, the
Company is continuing to reduce costs and improve productivity in
manufacturing, engineering and the administrative offices. Second, the Company
has increased wholegood prices in an attempt to improve the cash flow of the
Company. Third, the Company has added dealerships in an attempt to improve the
quantity of sales orders for the Company. Fourth, the Company has attempted to
improve dealer financing and customer leasing programs to increase both parts
and wholegood sales. Fifth, the Company has added engineering designs and
product improvement features to the products in an attempt to increase sales
and to remain competitive in the skid steer loader industry. Without external
financing, the Company anticipates that it will face additional working capital
and cash flow shortages during the next several months as production continues
to increase.
RESULTS OF OPERATIONS
Net earnings (loss) for the nine months ended April 30, 1996 and 1995 were
$44,519 and $(561,599), respectively. Management attributes the increase in
earnings to increased sales and decreased operating expenditures during the
period. Sales for the nine months ended April 30, 1996 were up $297,314 over
the same period during 1995 despite the Company's withdrawal from the rubber
track crawler market. In addition, total operating costs, including $3,892,966
Costs of Goods Sold and $1,092,871 Operating Costs, were down $343,127 during
the same nine month period resulting in an increase in operating income of
$640,441. Gross profits margins for the third quarter ended April 30, 1995
increased from 18% to 26%. The increase in profit margins was primarily due to
increased prices and reductions in direct and indirect labor costs.
Net Operating Income for the three months ending April 30, 1996 was $63,462,
compared to $13,303 for the same period during 1995. Selling, General &
Administrative expenses during third quarter ended April 30, 1996 increased
$65,923 over the same period 1995 due to increases in personnel and an
increased emphasis in sales and marketing. Management believes this difference
will stabilize and that the operating profit margin will increase during the
fourth quarter of 1996. In addition, management believes that Net Earnings
will increase during fourth quarter 1996 based upon the seasonality
of product sales and the history of sales during fourth quarter 1995.
7
<PAGE> 8
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION OF PLAN OF OPERATION FOR TRANSITIONAL SMALL
BUSINESS ISSUER (ALTERNATIVE 2) - (CONTINUED)
FINANCIAL CONDITION
Working capital has increased from $618,840 on July 31, 1995 to $813,546 on
April 30, 1996. This increase in working capital reflects a decrease in
accounts payable from $812,406 to $467,625 and an increase in accounts
receivable from $455,989 to $543,854 during the period. Cash remains a
significant concern for the Company. During the quarter, the lack of cash
resulted in the unavailability of certain production parts, causing production
flow to be interrupted. Also, the lack of cash reduced sales for the quarter,
limited accounts receivable for the Company and decreased the profit margins on
product sales. Although the Company has been able to operate with cash
generated from operations without additional external operating capital, there
is no assurance that the Company will be able to continue to do so in the
future.
Finally, the accumulated deficit of $5,881,872 represents losses accumulated
during the transition period of the Company following the merger with
Hydra-Mac, Inc. during 1991. However, despite the large accumulated deficit,
the Company Debt/Equity Ratio remains low because few financial organizations
have been willing to accept the risk of debt financing based upon the
unfavorable financial record of the Company. However, the Company continues to
pursue various financing alternatives which would provide the Company with the
cash and inventory necessary to support the Company's sales and production
goals. Based upon recent bank contacts, management is hopeful that external
financing will be approved during fourth quarter of 1996.
FACTORS AFFECTING FUTURE RESULTS
This report contains "forward looking" statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company cautions investors that there can be no
assurance that the forward looking business conditions or the actual operating
results will agree with those projected or suggested in such forward looking
statements based on, but not limited to:
8
<PAGE> 9
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION OF PLAN OF OPERATION FOR TRANSITIONAL SMALL
BUSINESS ISSUER (ALTERNATIVE 2) - (CONTINUED)
1. The Company's inability to obtain adequate working capital could
cause the Company's condition to differ materially from those set forth in
the forward-looking statements.
2. There is risk that the Company will not be able to obtain adequate
dealer financing for the Company's products.
3. Adverse affects of significant litigation matters and the
subsequent costs of such litigation could have an adverse effects on the
Company whether the Company is liable or not.
4. The Company's financial results in any particular fiscal period
are not necessarily indicative results for future periods. Increases in
material costs, warranty costs or costs of operation could have an adverse
effect on the Company.
5. The Company's success is partly dependent upon its ability to
successfully anticipate and adjust production capacity to meet demand,
which is partly dependent upon the ability of external suppliers to
deliver components at reasonable prices and in a timely manner. These
constraints could adversely effect future operating results.
6. The construction industry is a significant market for the
Company's products. During times of general economic decline, demand for
construction and related equipment, including the Company's products, can
be expected to decline. There can be no assurance that such general
economic conditions will not have adverse effect on the Company's
business.
7. The Company operates in a highly competitive industry. The
inability of the Company to carry out marketing and sales plans, product
price competition, the entry of new competitors into the industry, the
introduction of new products into the marketplace and adverse publicity
and news coverage could have an adverse effects on the Company's business.
8. The Company has experienced significant management and
production employee turnover during the past several years. At this time,
additional losses of key executives due to death, termination or
retirement could have an adverse effect on the Company.
9
<PAGE> 10
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
None.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
None.
(B) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the registration requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereto duly authorized.
MAGNUM RESOURCE, INC.
(Registrant)
Date: June 13, 1996 BY: _________________________
John Luoma
Chief Executive Officer
BY: _________________________
Richard Foster
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-1-1995
<PERIOD-END> APR-30-1996
<CASH> 23,149
<SECURITIES> 0
<RECEIVABLES> 543,854
<ALLOWANCES> 0
<INVENTORY> 1,425,847
<CURRENT-ASSETS> 2,094,595
<PP&E> 3,298,622
<DEPRECIATION> 1,864,354
<TOTAL-ASSETS> 3,567,594
<CURRENT-LIABILITIES> 1,281,049
<BONDS> 0
0
0
<COMMON> 102,533
<OTHER-SE> 1,948,730
<TOTAL-LIABILITY-AND-EQUITY> 3,567,594
<SALES> 5,061,777
<TOTAL-REVENUES> 5,061,777
<CGS> 3,892,966
<TOTAL-COSTS> 3,892,966
<OTHER-EXPENSES> 1,092,871
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,138
<INCOME-PRETAX> 44,519
<INCOME-TAX> 0
<INCOME-CONTINUING> 44,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,519
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
