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, 2003
Commission file number 0-3492
RESERVE INDUSTRIES CORPORATION
----------------------------------------------
(Name of Small Business Issuer in its charter)
NEW MEXICO 85-0128783
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 First Plaza, Suite 308, Albuquerque, New Mexico 87102
-------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
505-247-2384
----------------------------------------------
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
--- ---
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, 2003 - 2,803,763 shares $1.00 Par Value
INDEX
Page No.
--------
PART I. Financial Information
Consolidated Balance Sheets
May 31, 2003 and November 30, 2002 1
Consolidated Statements of Income
Second quarter ended
May 31, 2003 and 2002 2
Consolidated Statements of Cash Flows
Second quarter ended
May 31, 2003 and 2002 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis or
Plan of Operation 5 - 6
PART II. Other Information 7
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 2003 AND NOVEMBER 30, 2002
ASSETS 2003 2002
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 108,111 $ 61,078
Receivables, less allowance for
doubtful accounts $1,501 168,774 179,516
Receivables from affiliates and
related parties 789,615 727,286
Inventories 209,873 298,218
Prepaid expenses and deposits 60,132 130,017
----------- -----------
Total current assets 1,336,505 1,396,115
PROPERTY, PLANT AND EQUIPMENT, at cost 3,379,257 3,317,968
Less accumulated depreciation
and depletion (1,910,678) (1,773,951)
----------- -----------
Total property, plant and equipment 1,468,579 1,544,017
OTHER INVESTMENT 150,000 150,000
----------- -----------
Total assets $ 2,955,084 $ 3,090,132
=========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable $ 207,969 $ 373,503
Short-term debt related party 554,314 327,315
Current portion of long-term debt
related parties 753,718 753,718
Current portion of long-term debt 245,546 245,546
Deferred obligations to related parties 5,814,150 5,753,544
Loss in excess of investment in investee 420,000 420,000
Other current liabilities 51,692 70,919
----------- -----------
Total current liabilities 8,047,389 7,944,545
LONG-TERM DEBT, less current portion 137,330 255,706
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value.
Authorized 6,000,000 shares, issued
and outstanding 2,803,763 shares
in 2003 and 2002 2,803,763 2,803,763
Additional paid-in capital 5,471,218 5,471,218
Accumulated deficit (13,504,616) (13,385,100)
----------- -----------
Total stockholders' investment (5,229,635) (5,110,119)
Total liabilities and stockholders'
investment $ 2,955,084 $ 3,090,132
============ ===========
The accompanying notes are an integral part of these consolidated
statements. The 2003 and 2002 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SECOND QUARTER AND SIX MONTHS ENDED MAY 31, 2003 AND 2002
Second Quarter Ended Six Months Ended
MAY 31 MAY 31
2003 2002 2003 2002
----------- ----------- ----------- -----------
REVENUES & OTHER ITEMS:
Sales $ 932,450 $ 608,025 $ 1,635,657 $ 1,018,945
Royalties 44,908 48,360 115,945 99,814
Interest income 1,557 243 2,038 1,082
Other income (loss) 3,993 (1,456) 3,993 (1,201)
----------- ----------- ----------- -----------
Total revenues 982,908 655,172 1,757,633 1,118,640
EXPENSES & OTHER ITEMS:
Cost of sales 700,557 451,557 1,258,528 800,194
Loss on investment in investee - 189,854 - 413,055
General and administration 169,555 180,971 342,570 358,105
Interest expense 67,712 68,633 139,325 134,897
Depreciation and amortization 68,571 68,856 136,726 136,426
----------- ----------- ----------- -----------
Total costs and expenses 1,006,395 959,871 1,877,149 1,842,677
Pretax income (loss) from
continuing operations (23,487) (304,699) (119,516) (724,037)
Provision for income taxes - - - -
Net income (loss) from
continuing operations $ (23,487) $ (304,699) $ (119,516) $ (724,037)
EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing
operations (0.01) (0.11) (0.04) (0.26)
----------- ----------- ----------- -----------
Net (loss) per share $ (0.01)$ (0.11)$ (0.04)$ (0.26)
=========== =========== =========== ===========
Weighted Average Number of Shares
of Common Stock Outstanding 2,803,763 2,803,763 2,803,763 2,803,763
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated
statements. The 2003 and 2002 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SECOND QUARTERS ENDED MAY 31, 2003 AND MAY 31, 2002
Six Months Ended
May 31
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing
operations $ (119,516) $ (724,037)
Adjustments to reconcile net income
from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 136,726 136,426
(Gain) loss on investment in investee - 413,055
Changes in assets and liabilities:
(Increase) decrease in receivables 10,742 (49,128)
(Increase) decrease in inventories 88,345 (40,686)
(Increase) decrease in other
current assets 7,556 (31,260)
Increase (decrease) in trade
accounts payable (165,534) 154,677
Increase (decrease) in deferred
obligations to related parties 287,606 242,357
Increase (decrease) in other
current liabilities (19,227) (68,431)
----------- -----------
Total adjustments 346,214 757,010
Net cash provided (used) by
operating activities 226,698 32,973
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - Net (61,289) (3,199)
----------- -----------
Net cash (used) by investing
activities (61,289) (3,199)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in long-term debt (118,376) (49,949)
----------- -----------
Net cash provided (used) by
financing activities (118,376) (49,949)
Net increase (decrease) in cash
and cash equivalents 47,033 (20,175)
----------- -----------
Cash and cash equivalents at the
beginning of the year 61,078 76,223
----------- -----------
Cash and cash equivalents at the
end of the year $ 108,111 $ 56,048
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for
interest $ 23,195 $ 30,446
----------- -----------
The accompanying notes are an integral part of these consolidated
statements. The 2003 and 2002 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, 2002 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 2002, 2001, 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, 2003 compared
to the second quarter ended May 31, 2002
For the second quarter ended May 31, 2003, the
Registrant had revenues of $982,908, which resulted in a net loss
of $23,487 or $0.01 per share. For the second quarter ended May
31, 2002, the Registrant had revenues of $655,172, which resulted
in a net loss of $304,699 or $0.11 per share.
The revenues in the second quarter of 2003 increased from
2002 as a result of an increase in sales from $608,025 to
$932,450. The sales at the Registrant's silica sand operation
increased as a result an increase in demand for the Registrant's
low iron glass sand and bunker sand. The increased demand will
continue through most of the third quarter.
The costs and expenses were $1,006,395 and $959,871 in the
second quarter of 2003 and 2002, respectively. The cost of sales
increased by $249,000 from 2002 to 2003 due primarily to the
increased demand for glass sand. The G&A decreased slightly from
2002 to 2003. 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. The Registrant's loss on
investment from its affiliated venture Rossborough-Remacor LLC
(R-R) decreased by $189,854 as the losses exceeded the
Registrant's investment and obligations. R-R was not able to
reach an agreement with its suppliers and filed for bankruptcy on
June 18, 2003. R-R continued its program of trying to reduce
costs and improve both sales and product margins and has shutdown
its steel side and magnesium recycling operations. R-R will
concentrate on its desulfurization operations.
Six months ended May 31, 2003 compared
to the six months ended May 31, 2002
For the six months ended May 31, 2003, the Registrant had
revenues of $1,757,633, which resulted in a net loss of $119,516
or $0.04 per share. For the six months ended May 31, 2002, the
Registrant had revenues of $1,118,640, which resulted in a net
loss of $724,037 or $0.26 per share.
The revenues in the six months ended May 31, 2003 increased
over 2002 as a result of an increase in sales of $616,712 and an
increase in royalty income of $16,131.
The costs and expenses were $1,877,149 and $1,842,677 for
the six months ended May 31, 2003 and 2002, respectively. For
the current six month period, the cost of sales increased by
$458,334 from 2002 to 2003 as a result of the increase amount of
low iron sand produced and sold. The Registrant's loss on
investment from its affiliated venture Rossborough-Remacor LLC
(R-R) decreased by $413,055 as the losses exceeded the
Registrant's investment and obligations. The G&A decreased
slightly in 2003. Some of the expenses contained in the general
and administrative costs pertaining to salaries of the officers
have been accrued but not paid, as the Company is conserving its
cash.
Liquidity and Capital Resources
Period from December 1, 2002 to May 31, 2003
The Company's net cash provided by operating activities was
$226,698 and $32,973 for the six months ended May 31, 2003 and
2002, respectively. The net cash used by investing activities
was $61,289 and $3,199 for the same six months in 2003 and 2002,
respectively. For 2003, the capital expenditures were for
capital improvements to the sand project. The Company decreased
its long-term debt by $118,376 and $49,949 for the six months
ended May 31, 2003 and 2002, respectively. The Company's cash
and cash equivalents increased (decreased) by $47,033 and
$(20,175) for the six months ended May 31, 2003 and 2002,
respectively.
The Company had working capital deficits of approximately
$6.7 million and $6.5 million for the six months ended May 31,
2003 and the year ended November 30, 2002, 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, 2003. As of May 31, 2003, these accruals (salaries
deferred compensation and deferred interest) exceeded $5.8
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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Registrant's management, including the Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of
the effectiveness of the design and operation of the Registrant's
disclosure controls and procedures within 90 days of this report.
Based on that evaluation, the Registrant's management, including
the CEO and CFO, concluded that the Registrant's disclosure
controls and procedures were effective as of August 31, 2002.
Changes in Internal Controls
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect
internal controls subsequent to the date of their evaluation.
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
On June 18, 2003, Rossborough-Remacor LLC filed for Chapter
11 Bankruptcy protection. The bankruptcy was filed in the United
States Bankruptcy Court for the Northern District of Ohio.
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
--------------------------------
William J. Melfi, Vice President
Finance and Administration
(Principal Financial and
Accounting Officer and
Authorized Officer)
Date: July 15, 2003
CERTIFICATIONS
I, William J. Melfi, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Reserve Industries Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent valuation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function): Note: The Registrant does not have an auditor.
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: July 15, 2003
/s/ William J. Melfi
------------------------
William J. Melfi
Vice President Finance and Administration
and Chief Financial Officer
I, Frank C. Melfi, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of
Reserve Industries Corporation;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-
14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent valuation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function): Note: The Registrant does not have an auditor.
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: July 15, 2003
/s/ Frank C Melfi
----------------------------------
President and Chief Executive Officer