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 February 28, 2001
Commission file number 0-3492
RESERVE INDUSTRIES CORPORATION
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(Name of Small Business Issuer in its charter)
NEW MEXICO 85-0128783
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 First Plaza, Suite 308, Albuquerque, New Mexico 87102
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(Address of principal executive offices) (Zip Code)
505-247-2384
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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
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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 April 10, 2001 - 2,803,763 shares $1.00 Par Value
INDEX
Page No.
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PART I. Financial Information
Consolidated Balance Sheets
February 28, 2001 and November 30, 2000 1
Consolidated Statements of Income
First quarter ended
February 28, 2001 and February 29, 2000 2
Consolidated Statements of Cash Flows
First quarter ended
February 28, 2001 and February 29, 2000 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis or
Plan of Operation 5 - 6
PART II. Other Information 7
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying statements, which should be read in conjunction
with the Consolidated Financial Statements included in the
November 30, 2000 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 2000, 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.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2001 AND NOVEMBER 30, 2000
ASSETS 2001 2000
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CURRENT ASSETS:
Cash and cash equivalents $ 12,996 $ 6,729
Receivables, less allowance for
doubtful accounts -0- 268,050 362,889
Receivables from affiliates
and related parties (Note 11) 552,923 527,423
Inventories (Note 2) 213,483 182,498
Prepaid expenses and deposits 60,763 73,292
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Total current assets 1,108,215 1,152,831
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 3) 3,003,043 3,147,237
Less accumulated depreciation and depletion (1,128,878) (1,249,060)
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1,874,165 1,898,177
INVESTMENT IN UNCONSOLIDATED AFFILIATES (Note 4) 2,075,623 2,155,158
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Total assets $ 5,058,003 $ 5,206,166
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable $ 488,174 $ 433,889
Short-term debt related party 314,000 175,000
Current portion of long-term debt (Note 9) 981,364 997,196
Deferred obligations to related parties (Note 11)4,403,144 4,319,245
Other current liabilities (Note 8) 168,848 90,184
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Total current liabilities 6,355,530 6,015,514
LONG-TERM DEBT, less current portion (Note 10) 525,091 558,261
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized
6,000,000 shares, issued and outstanding
2,803,763 shares in 2001 and 2000 2,803,763 2,803,763
Additional paid-in capital 5,871,218 5,871,218
Accumulated deficit (10,497,599) (10,042,590)
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Total stockholders' investment (1,822,618) (1,367,609)
Total liabilities and stockholders'
investment $ 5,058,003 $ 5,206,166
The accompanying notes are an integral part of these consolidated
statements. The 2001 and 2000 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FIRST QUARTERS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
Three Months Ended
February 28 February 29
2001 2000
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REVENUES & OTHER ITEMS:
Sales $ 509,411 $ 490,729
Interest income 35 130
Gain on sale of equipment 19,555 55,695
Income (loss) from affiliates:
Equity in earnings (79,505) (28,881)
Consulting fees - 7,500
Other income 11,988 -
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Total revenues 461,484 525,173
EXPENSES & OTHER ITEMS:
Cost of sales 607,346 405,777
General and administration 172,187 173,983
Interest 69,340 64,729
Depreciation and amortization 67,620 65,626
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Total costs and expenses 916,493 710,115
Pretax income (loss) from
continuing operations (455,009) (184,942)
Provision for income taxes - -
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Net income (loss) from continuing operations$ (455,009) $ (184,942)
EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations (0.16) (0.07)
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Net income (loss) per share $ (0.16) $ (0.07)
Weighted Average Number of Shares of
Common Stock Outstanding 2,803,763 2,820,156
The accompanying notes are an integral part of these consolidated
statements. The 2001 and 2000 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FIRST QUARTERS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
Three Months Ended
February 28 February 29
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations $ (455,009) $ (184,942)
Adjustments to reconcile net income from
continuing operations to net cash provided
by operating activities:
Depreciation and amortization 67,620 65,626
Equity in loss of affiliates 79,505 28,881
(Gain) on sale of equipment (19,555) (55,695)
Changes in assets and liabilities:
Decrease in receivables 69,339 13,460
(Increase) decrease in inventories (30,985) 210,370
Decrease in other current assets 12,529 7,475
Increase (decrease) in trade accounts payable 54,285 (116,367)
Increase in deferred obligations
to related parties 222,899 336,082
Increase (decrease) in other
current liabilities 62,832 (298,411)
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Total adjustments 518,469 191,421
Net cash provided (used)
by operating activities 63,460 6,479
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of equipment 31,912 29,136
Capital expenditures (55,965) (32,629)
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Net cash provided (used)
by investing activities (24,053) (3,493)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in long-term debt (33,170) (9,468)
Net cash provided (used) by financing activities (33,170) (9,468)
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Net increase (decrease) in cash and
cash equivalents 6,237 (6,482)
Cash and cash equivalents at the beginning
of the year 6,729 17,689
Cash and cash equivalents at the end of the year$ 12,966 $ 11,207
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 24,837 $ 23,532
The accompanying notes are an integral part of these consolidated
statements. The 2001 and 2000 financial information is unaudited.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
First quarter ended February 28, 2001 compared
to the first quarter ended February 29, 2000
For the first quarter ended February 28, 2001, the Registrant had
revenues of $461,484, which resulted in a net loss of $455,009 or
$0.16 per share. For the first quarter ended February 29, 2000,
the Registrant had revenues of $525,173, which resulted in a net
loss of $184,942 or $0.07 per share.
The revenues in the first quarter of 2001 decreased from
2000 as a result of an increase in sales from $490,729 to
$509,411, a decrease in gain on sale of equipment from $55,695 to
$19,555 and an increase in equity losses from $28,881 to $79,505.
The sales at the Registrant's silica sand operation increased as
a result a slight increase in demand for the Registrant's low
iron glass sand. The plant improvement program was continued
during the quarter and is planned to be completed by the end of
the second quarter 2001. These final improvements are expected
to reduce the cost of sales. The Registrant's equity income
remained in a loss position even though its affiliated
partnership had increased sales volume compared to the first
quarter of 2000. Most of the replacement sales are at much lower
gross margins, which resulted in an increased loss for the
current quarter.
The costs and expenses were $916,493 and $710,115 in the
first quarter of 2001 and 2000, respectively. The cost of sales
increased by $201,569 from 2000 to 2001 due primarily due to
operational problems that occurred in December and January
related to the sand operation. The G&A decreased slightly from
2000 to 2001. 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.
Liquidity and Capital Resources
Period from December 1, 2000 to February 28, 2001
The Company's net cash provided (used) by operating
activities was $64,460 and $6,479 for the first quarter ended
February 28, 2001 and February 29, 2000, respectively. The net
cash used by investing activities was $24,053 and $3,493 for the
same three months in 2001 and 2000, respectively. The cash
provided by investing activities was from the sale of surplus
equipment, and the capital expenditures were for capital
improvements to the sand project. The Company decreased its
long-term debt by $33,170 and $9,468 for the three months ended
February 28, 2001 and 2000, respectively. The Company's cash and
cash equivalents increased (decreased) by $6,237 and $(6,482) for
the three months ended February 28, 2001 and 2000, respectively.
The Company had working capital deficits of approximately
$5.25 million and $4.86 million for the three months ended
February 28, 2001 and the year ended November 30, 2000,
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 part of
the interest due on certain loans were accrued but not paid for
the three months ended February 28, 2001 and 2000, respectively.
As of February 28, 2001, these accruals (salaries, deferred
compensation and deferred interest) exceeded $4.4 million.
For the current year, the Company plans to continue to
accrue part of the obligations described in the preceding
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, Part II Item 5.
other information, 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
A form 8K was filed March 7, 2001. Rossborough Manufacturing
Co. L.P. (Rossborough), in which the Registrant has a 44% equity
interest, has signed an agreement to purchase substantially all
of the assets and certain of the liabilities of Reactive Metals
and Alloys Corporation (Remacor) of West Pittsburgh, PA. Both
companies service the steel industry by providing hot metal
desulfurization, desulfurization equipment, metallurgical
additives for secondary steel refining, technology and field
service.
Rossborough has formed Rossborough-Remacor LLC as the acquisition
entity and will contribute substantially all of its assets and
its liabilities to the LLC. Remacor has filed for Chapter 11
bankruptcy protection and is seeking authority of the Bankruptcy
Court to sell its assets to Rossborough-Remacor. The transaction
will create the basis for a reorganization plan for Remacor that
will enable it to satisfy the claims of its unsecured creditors
over time.
The purchase price for the Remacor assets is the assumption of
certain liabilities, a subordinated note in an amount equal to
$4,000,000 and a 35% membership interest in Rossborough-Remacor.
It is anticipated that the transaction will close prior to April
30, 2001. Completion of the transaction is subject to due
diligence, approval of the Bankruptcy Court, and obtaining
financing.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 27
(b) Reports - Form 8K/A filed March 7, 2001
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
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William J. Melfi, Vice President
Finance and Administration
(Principal Financial and Accounting
Officer and Authorized Officer)
Date: April 10, 2001