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 October 31, 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 December 1, 1996 - 10,252,337.
Transitional Small Business Disclosure Format (Alternative 2):
Yes X No___
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. - Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
October 31, July 31,
ASSETS 1996 1996
- ------ ----------- -----------
Current assets:
Cash $ 6,245 $ 12,011
Accounts receivable 907,631 500,649
Inventories 1,377,843 1,298,903
Prepaid expenses 98,161 104,500
--------- ---------
Total current assets 2,389,880 1,916,063
Property, plant & equipment, net 1,657,676 1,523,583
Other assets 37,717 38,388
--------- ---------
Total assets
$ 4,085,273 $ 3,478,034
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
Current liabilities:
Current maturities of
long-term obligations $ 196,766 $ 242,535
Accounts payable 734,991 414,577
Revolving note payable to bank and
bank overdraft 653,916 333,250
Accrued liabilities 562,166 568,497
--------- ---------
Total current liabilities 2,147,839 1,558,859
Long-term obligations, less current
maturities 36,898 62,621
Deferred income taxes 93,000 96,000
--------- ---------
TOTAL LIABILITIES 2,277,737 1,717,480
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 October 31, 1996
and July 31, 1996 102,523 102,523
Additional paid in capital 7,830,602 7,830,602
Accumulated deficit (6,125,589) (6,172,571)
--------- ---------
Total stockholders' equity 1,807,536 1,760,554
--------- ---------
TOTAL LIABILITIES & EQUITY $ 4,085,273 $ 3,478,034
=========== ===========
See Accompanying Notes to Financial Statements
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
October 31,
1996 1995
---------- -------
Net sales $ 2,246,753 $ 1,832,027
Cost of goods sold 1,713,407 1,288,590
------------ ------------
Gross profit 533,346 543,437
OPERATING EXPENSES:
Selling, general
and administration 430,729 439,777
Research, development and engineering 42,177 57,108
------------ ------------
Operating profit 60,440 46,552
OTHER INCOME (EXPENSE):
Interest income (expense), net (20,208) (10,555)
Other 3,750 (1,500)
------------ ------------
Earnings before income taxes 43,982 34,497
Income tax benefit 3,000 -0-
------------ ------------
NET EARNINGS $ 46,982 $ 34,497
============ ============
Net earnings per share $ 0.00 $ 0.00
============ ============
Weighted average number of
common shares outstanding 10,252,337 10,122,802
============ ============
See Accompanying Notes to Financial Statements
MAGNUM RESOURCES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
October 31,
1996 1995
-------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 46,982 $ 34,497
Adjustments to reconcile net earnings
to net cash from operations:
Depreciation & amortization 59,226 107,084
Deferred income taxes (3,000) -0-
Changes in assets and liabilities:
Accounts receivable (406,982) (64,808)
Inventories (78,940) 141,449
Prepaid expense 6,339 (13,236)
Accounts payable 320,414 (221,611)
Accrued liabilities (6,331) (40,971)
--------- ---------
Net cash used in operating activities (62,292) (57,596)
Cash flows from investing activities:
Purchase of property, plant & equipment (192,195) (24,070)
Other assets -0- (328)
--------- ----------
Net cash used in investing activities (192,195) (24,398)
Cash flows from financing activities:
Bank overdrafts (39,213) 71,666
Proceeds from revolving note payable
to bank 359,878 -0-
Proceeds from long-term obligations 16,471 -0-
Payments on long-term obligations (88,415) (53,875)
--------- ----------
Net cash provided by investing activities 248,721 17,791
--------- ---------
NET DECREASE IN CASH (5,766) (64,203)
Cash at beginning of period 12,011 69,203
--------- ---------
Cash at end of period $ 6,245 $ 5,000
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 14,814 $ 10,555
========= =========
See Accompanying Notes to Financial Statements
MAGNUM RESOURCES, INC. AND SUBSIDIARIES
QUARTERS ENDED OCTOBER 31, 1996 AND 1995
(UNAUDITED)
NOTE A: BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements include the accounts
of Magnum Resources, Inc. ('Magnum Resources') and its wholly-owned
subsidiaries. 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 condensed 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, 1996. 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. Operating results for interim periods are not
necessarily indicative of results which may be expected for the year as a whole.
ITEM 2 - MANAGEMENT'S DISCUSSION OF PLAN OF OPERATION FOR TRANSITIONAL SMALL
BUSINESS ISSUER (ALTERNATIVE 2)
PLAN OF OPERATION
The Company has implemented a number of strategies to improve operations
including: (1) expanding marketing efforts by hiring a professional marketing
firm and utilizing a computer monitoring system, (2) implementing a limited
floor-plan financing program to improve dealer services and increase product
sales, (3) converting and integrating all in-house computer systems in order to
provide the opportunity for remote data inquiry and processing, and (4),
consolidating all banking operations, thereby expanding the availability of cash
to the Company. The Company also plans to increase the revenues in 1997 by (1)
reintroducing the rubber track crawler, (2) expanding the foreign shipments of
its products to customers in South and Central America, (3) increasing the
dealership coverage in the United States, and, (4) improving overall product
quality to minimize product returns. Management believes that the current
production facilities could absorb an additional 25% of production without
needing additional plant capacity or major equipment purchases.
RESULTS OF OPERATIONS
Revenues for the quarter ended October 31, 1996 increased by 23% to $2,246,753
compared with $1,832,027 for the same period in 1995. Net earnings increased 36%
to $46,982, from $34,497 which was reported in the first quarter of 1995. The
increase in revenues for 1996 was primarily due to an increase in unit sales of
skid loaders and from an increase in list prices of replacement parts. Gross
margins decreased by six percentage points, due primarily to competitive price
pressures and to higher manufacturing costs. Selling, General, and
Administrative expenses decreased slightly from $439,777 in the first quarter of
1995 to $430,729 in the first quarter of 1996. Research, development, and
engineering costs also decreased in 1996. These costs decreased from $57,108 in
the first quarter of 1995 to $42,177 in the same period of 1996 due primarily to
a reduced emphasis on new product development and a reduced need for engineering
changes on current products.
FINANCIAL CONDITION
Although fixed assets have been adequately maintained, the Company has not
implemented an adequate program of equipment purchasing and replacement to avoid
the potential problems of equipment stoppages and equipment obsolescence. In
addition, the Company anticipates that working capital will always be a concern
because of the capital intensity of the product-line. The Company has, however,
implemented several strategies to increase working capital for the company
including (1) increasing the gross profit margins of the skid steer loaders and
the related parts and accessories, (2) acquiring a line-of-credit to fund sales
on accounts receivable, (3) implementing aggressive cash collection procedures,
(4) eliminating major cash-on-delivery and cash-on-order requirements from
vendors, and (5) implementing a strategy of just-in-time inventory controls.
These working capital strategies, if continued, would provide an on-going
expansion of business operations which would increase product sales and
stabilize production levels. While the Company plans to continue to break even
during the next fiscal year, there is no assurance that the Company will be able
to maintain sufficient working capital to continue to increase sales and
production levels.
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:
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 not experienced significant management and
production employee turnover during the past several years.
However, losses of key executives due to death, termination or
retirement could have an adverse effect on the Company.
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
On or about August 5, 1996, the Company filed a report on Form 8-K, with the
Commission regarding a Settlement Agreement and Mutual Release with John
Warburton who is currently on the Company's Board of Directors.
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 RESOURCES, INC.
(Registrant)
Date: February 14, 1997 BY: /s/ John Luoma
------------------
John Luoma
Chief Executive Officer
BY: /s/ David M. Eichers
--------------------
David M. Eichers
Secretary and Chief Accounting
Officer
