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, 2002
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, 2002 - 2,803,763 shares $1.00 Par Value
INDEX
Page No.
PART I. Financial Information
Consolidated Balance Sheets
February 28, 2002 and November 30, 2001 1
Consolidated Statements of Income
First quarter ended
February 28, 2002 and 2001 2
Consolidated Statements of Cash Flows
First quarter ended
February 28, 2002 and 2001 3
Footnotes to Consolidated Financial Statements 4
Management's Discussion and Analysis or
Plan of Operation 5 - 7
PART II. Other Information 8
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 2002 AND NOVEMBER 30, 2001
ASSETS 2002 2001
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CURRENT ASSETS:
Cash and cash equivalents $ 60,698 $ 76,223
Receivables, less allowance for
doubtful accounts -0- 120,035 177,698
Receivables from affiliates and
related parties 655,678 634,548
Inventories 302,964 298,357
Prepaid expenses and deposits 46,742 55,674
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Total current assets 1,186,117 1,242,500
PROPERTY, PLANT AND EQUIPMENT, at cost 3,262,771 3,262,771
Less accumulated depreciation
and depletion (1,573,054) (1,505,484)
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Total property, plant and equipment 1,689,717 1,757,287
INVESTMENT IN UNCONSOLIDATED AFFILIATES (105,680) 117,541
Total assets $ 2,770,154 $ 3,117,328
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LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable $ 184,641 $ 143,306
Short-term debt related party 335,300 348,000
Current portion of long-term debt 986,812 946,812
Deferred obligations to related parties 5,014,686 4,910,582
Other current liabilities 45,337 145,791
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Total current liabilities 6,566,776 6,494,491
LONG-TERM DEBT, less current portion 383,842 383,963
STOCKHOLDERS' INVESTMENT:
Common stock, $1.00 par value. Authorized
6,000,000 shares, issued and outstanding
2,803,763 shares in 2002 and 2001 2,803,763 2,803,763
Additional paid-in capital 5,471,218 5,471,218
Accumulated deficit (12,455,445) (12,036,107)
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Total stockholders' investment 4,180,464) (3,761,126)
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Total liabilities and
stockholders' investment $ 2,770,154 $ 3,117,328
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The accompanying notes are an integral part of these consolidated
statements. The 2002 and 2001 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FIRST QUARTERS ENDED FEBRUARY 28, 2002 AND FEBRUARY 28, 2001
Three Months Ended
February 28
2002 2001
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REVENUES & OTHER ITEMS:
Sales $ 410,919 $ 509,411
Royalties 51,454 11,988
Interest income 839 35
Gain on sale of equipment - 19,555
Income (loss) from affiliates:
Equity in earnings (223,201) (79,505)
Other income 255 -
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Total revenues 240,266 461,484
EXPENSES & OTHER ITEMS:
Cost of sales 348,636 607,346
General and administration 177,134 172,187
Interest 66,264 69,340
Depreciation and amortization 67,570 67,620
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Total costs and expenses 659,604 916,493
Pretax income (loss) from
continuing operations (419,338) (455,009)
Provision for income taxes - -
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Net income (loss) from
continuing operations $ (419,338) $ (455,009)
EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations (0.15) (0.16)
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Net income (loss) per share $ (0.15) $ (0.16)
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Weighted Average Number of Shares of
Common Stock Outstanding 2,803,763 2,803,763
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The accompanying notes are an integral part of these consolidated
statements. The 2002 and 2001 financial information is unaudited.
RESERVE INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FIRST QUARTERS ENDED FEBRUARY 28, 2002 AND 2001
Three Months Ended
February 28
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) from continuing Operations $ (419,338) $ (455,009)
Adjustments to reconcile net income from
Continuing operations to net cash provided
by operating activities:
Depreciation and amortization 67,570 67,620
Equity in (gain) loss from affiliates 223,201 79,505
(Gain) loss on disposition of fixed assets - (19,555)
Changes in assets and liabilities:
(Increase) decrease in receivables 57,663 69,339
(Increase) decrease in inventories (4,607) (30,985)
(Increase) decrease in other current assets (12,178) 12,529
Increase (decrease) in trade accounts payable 41,335 54,285
Increase (decrease) in deferred obligations
to related parties 91,404 222,899
Increase (decrease) in other current liabilities (60,454) 62,832
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Total adjustments 403,934 518,469
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Net cash provided (used) by operating activities (15,404) 63,460
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of equipment - 31,912
Capital expenditures - (55,965)
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Net cash provided (used) by investing activities - (24,053)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in long-term debt (121) (33,170)
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Net cash provided (used) by financing activities (121) (33,170)
Net increase (decrease) in cash and cash equivalents (15,525) 6,237
Cash and cash equivalents at the
beginning of the year 76,223 6,729
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Cash and cash equivalents at the end of the year $ 60,698 $ 12,966
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 16,561 $ 24,837
The accompanying notes are an integral part of these consolidated
statements. The 2002 and 2001 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, 2001 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
years2001, 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
First quarter ended February 28, 2002 compared
to the first quarter ended February 28, 2001
For the first quarter ended February 28, 2002, the Registrant
had revenues of $240,266, which resulted in a net loss of
$419,338 or $0.15 per share. 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.
The revenues in the first quarter of 2002 decreased from
2001 as a result of a decrease in sales from $509,411 to
$410,919, a decrease in gain on sale of equipment of $19,555 and
an increase in equity losses from $79,505 to $223,201. These
decreases were offset by an increase in royalty income of
$39,466. The sales at the Registrant's silica sand operation
decreased as a result a decrease in demand for the Registrant's
low iron glass sand and bunker sand. The Registrant's equity
income from its affiliated venture Rossborough-Remacor LLC (R-R)
remained in a loss position as sales have not recovered due to
the loss of several steel customers to bankruptcy and the
slowness in the economy. R-R expects to complete the
consolidation of last summer's merger during the next quarter.
The costs and expenses were $659,604 and $916,493 in the
first quarter of 2002 and 2001, respectively. The cost of sales
decreased by $258,710 from 2001 to 2002 due primarily due to the
completion of the plant and partially due to the reduction in
sales. The G&A increased slightly from 2001 to 2002. 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, 2001 to February 28, 2002
The Company's net cash provided (used) by operating
activities was $(15,404) and $64,460for the first quarter ended
February 28, 2002 and 2001, respectively. The net cash used by
investing activities was $0 and $24,053 for the same three months
in 2002 and 2001, respectively. For 2001, 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 $121
and $33,170 for the three months ended February 28, 2002 and
2001, respectively. The Company's cash and cash equivalents
increased (decreased) by $15,525 and $6,237 for the three months
ended February 28, 2002 and 2001, respectively.
The Company had working capital deficits of approximately
$5.38 million and $5.25 million for the three months ended
February 28, 2002 and the year ended November 30, 2001,
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, 2002 and 2001, respectively.
As of February 28, 2002, these accruals (salaries, deferred
compensation and deferred interest) exceeded $4.9 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
Not Applicable
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)