U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
z Quarterly report under Section 13 or 15(d) of the Securities and Exchange
Act of 1934
For the quarterly period ended May 31, 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 July 10, 2001 - 2,803,763 shares $1.00 Par Value
INDEX
Page No.
PART I. Financial Information
Consolidated Balance Sheets
May 31, 2001 and November 30, 2000 1
Consolidated Statements of Income
Second quarter ended
May 31, 2001 and 2000 2
Consolidated Statements of Cash Flows
Second quarter ended
May 31, 2001 and 2000 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis or
Plan of Operation 5 - 7
PART II. Other Information 8
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 2001 AND NOVEMBER 30, 2000
ASSETS 2001 2000
CURRENT ASSETS: ----------- -----------
Cash and cash equivalents $ 4,650 $ 6,729
Receivables, less allowance for doubtful
accounts -0- 127,073 362,889
Receivables from affiliates and related parties 574,323 527,423
Inventories 202,950 182,498
Prepaid expenses and deposits 45,792 73,292
----------- -----------
Total current assets 954,788 1,152,831
PROPERTY, PLANT AND EQUIPMENT, at cost 3,249,921 3,147,237
Less accumulated depreciation and depletion (1,384,543) (1,249,060)
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1,865,378 1,898,177
INVESTMENT IN UNCONSOLIDATED AFFILIATES 1,721,632 2,155,158
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Total assets $ 4,541,798 $ 5,206,166
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LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable $ 379,540 $ 433,889
Short-term debt related party 429,000 175,000
Current portion of long-term debt 981,364 997,196
Deferred obligations to related parties 4,553,931 4,319,245
Other current liabilities 123,342 90,184
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Total current liabilities 6,467,177 6,015,514
LONG-TERM DEBT, less current portion 480,918 558,261
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 (11,081,278) (10,042,590)
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Total stockholders' investment (2,406,297) (1,367,609)
Total liabilities and stockholders' investment $ 4,541,798 $ 5,206,166
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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 SECOND QUARTERS AND SIX MONTHS ENDED MAY 31, 2001 AND 2000
Second Quarter Ended Six Months Ended
MAY 31 MAY 31
2001 2000 2001 2000
----------- ----------- ----------- -----------
REVENUES & OTHER ITEMS:
Sales $ 511,608 $ 560,120 $ 1,021,019 $ 1,050,849
Royalties 17,437 - 29,425 -
Interest income 9,590 58 9,626 188
Gain (loss) on sale of equipment - 54,537 19,555 110,232
Income (loss) from affiliates:
Equity in earnings (353,991) (39,617) (433,496) (68,498)
Consulting fees - - - 7,500
Other income 24,782 - 24,782 -
----------- ----------- ----------- -----------
Total revenues 209,426 575,098 670,911 1,100,271
EXPENSES & OTHER ITEMS:
Cost of sales 478,392 525,499 1,085,738 931,276
General and administration 168,357 168,075 340,544 342,058
Interest 78,206 62,183 147,546 126,912
Depreciation and amortization 68,151 63,821 135,771 129,446
----------- ----------- ----------- -----------
Total costs and expenses 793,106 819,578 1,709,599 1,529,692
Pretax income (loss) from operations (583,680) (244,480) (1,038,688) (429,421)
Provision for income taxes - - - -
Net income (loss) from operations $ (583,680)$ (244,480) $(1,038,688) $ (429,421)
============ =========== =========== ===========
EARNINGS (LOSS) PER SHARE:
Income (loss) from operations (0.21) (0.09) (0.37) (0.16)
----------- ----------- ----------- -----------
Net income (loss) per share $ (0.21)$ (0.09) $ (0.37) $ (0.16)
=========== =========== =========== ===========
Weighted Average Number of Shares of
Common Stock Outstanding 2,803,763 2,761,960 2,803,763 2,761,960
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 SIX MONTHS ENDED MAY 31, 2001 AND MAY 31, 2000
Six Months Ended
May 31
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) from continuing operations $(1,038,688) $ (429,421)
Adjustments to reconcile net income from continuing
operations to net cash provided by operating activities:
Depreciation and amortization 135,771 129,446
Equity in loss of affiliates 433,496 68,498
(Gain) on sale of equipment (19,555) (110,232)
Changes in assets and liabilities:
Decrease in receivables 235,816 35,044
(Increase) decrease in inventories (20,452) 195,655
Decrease in other current assets 27,500 7,590
(Decrease) in trade accounts payable (54,349) (19,149)
Increase in deferred obligations to related parties 441,786 275,013
Increase (decrease) in other current liabilities 33,158 (88,991)
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Total adjustments 1,213,171 492,874
Net cash provided (used) by operating activities 174,483 63,453
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of equipment 31,912 128,214
Capital expenditures (115,299) (63,966)
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Net cash (used) provided by investing activities (83,387) 64,249
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in long-term debt (93,175) (11,754)
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Net cash provided (used) by financing activities (93,175) (11,754)
Net (decrease) increase in cash and cash equivalents (2,079) 115,948
Cash and cash equivalents at the beginning of the year 6,729 17,689
Cash and cash equivalents at the end of the year $ 4,650 $ 133,637
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 62,248 $ 40,595
The accompanying notes are an integral part of these consolidated
statements. The 2001 and 2000 financial information is unaudited.
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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Second quarter ended May 31, 2001 compared
to the second quarter ended May 31, 2000
For the second quarter ended May 31, 2001, the Registrant had revenues
of $209,426, which resulted in a net loss of $583,680 or $0.21 per
share. For the second quarterended May 31, 2000, the Registrant
had revenues of $575,098, which resulted in a net loss of $244,480
or $0.09 per share.
The revenues in the second quarter of 2001 decreased from 2000 as a
result of a decrease in sales from $560,120 to $511,608, a decrease in
gain on sale of equipment by $54,537, and an increase in equity losses
from $39,617 to $353,991. The sales at the Registrant's silica sand
operation decreased as a result of a drop in cement sand sales, which
was partially offset by and increase in demand for the Registrant's low
iron glass sand. The plant improvement program was completed during
the second quarter 2001. The Registrant's equity income decreased as
a result of the continuing problems in the primary steel industry,
including the bankruptcy by LTV Steel.
The costs and expenses were $793,106 and $819,578 in the second
quarter of 2001 and 2000, respectively. The cost of sales decreased by
$47,107 from 2000 to 2001 as a direct result of the plant improvements
which were completed during the quarter. The Registrant intends to
continue its efforts to lower the production costs related to its low
iron sand. The G&A was comparable for both years, while the interest
costs increased 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.
Six months ended May 31, 2001 compared
to the six months ended May 31, 2000
For the six months ended May 31, 2001, the Registrant had revenues of
$670,911, which resulted in a net loss of $1,038,688 or $0.37 per share.
For the six months ended May 31, 2000, the Registrant had revenues of
$1,100,271, which resulted in a net loss of $429,421 or $0.16 per share.
The revenues in the second quarter of 2001 decreased from 2000 primarily
as a result of an increase in equity losses from $68,498 to $433,496 and
a decrease in gain on sale of equipment by $90,677. The Registrant's
equity income decreased as a result of the continuing problems in the
primary steel industry, including the bankruptcy by LTV Steel.
The costs and expenses were $1,709,599 and $1,529,692 in the six
months of 2001 and 2000, respectively. For the current six month
period, the cost of sales increased by $154,462 from 2000 to 2001 as
a result of operating problems in the first quarter; these problems
were corrected during the second quarter as the project was completed
during the second quarter. The Registrant intends to continue its efforts
to lower the production costs related to its low iron sand. The G&A was
comparable for both years, while the interest costs increased 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 May 31, 2001
The Company's net cash provided by operating activities was $174,483 and
$63,453 for the second quarter ended May 31, 2001 and May 31, 2000,
respectively. The net cash provided (used) by investing activities was
$(83,387) and $64,249 for the same six 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 $93,175 and $11,754 for the six months ended
May 31, 2001 and 2000, respectively. The Company's cash and cash
equivalents increased (decreased) by $(2,079) and $115,948 for
the six months ended May 31, 2001 and 2000, respectively.
The Company had working capital deficits of approximately $5.51 million and
$4.86 million for the six months ended May 31, 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 six months ended May 31, 2001 and 2000, respectively. As of
May 31, 2001, these accruals (salaries, deferred compensation and deferred
interest) exceeded $4.5 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. The Bankruptcy Court
has approved the transaction and due diligence has been completed.
If financing can be obtained, it is anticipated that the transaction
will close prior to July 31, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports - None
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: July 13, 2001